How may a business valuation affect my heirs’ estate tax?

The federal estate tax considers the fair market value of your gross assets at the time of your death when determining the tax liability. Appraising your business now may give you its current worth and provide more options on how you may transfer it to your heirs.

The IRS provides the methods and factors it uses when valuing a private and closely held business. Under Revenue Ruling 59-60, the worth of your business includes its nature and history, as explained by CPA Practice Advisor.

What are some factors that may increase my business’s value?

If your business does not trade on a stock exchange, its value may come from comparisons of similar companies traded on an exchange. The products and services you provide may have the same worth as those offered by a large company and possibly affect the market value of your enterprise.

Business goodwill, such as relationships with your customers and suppliers, may add irreplaceable intangible value. Your business may continue after your death, and its future revenue capacity may show in its current market price. If you own a small corporation that distributes cash or stock, it may influence your company’s long-term value.

How may a valuation determine whether a business needs disposal?

Your business may require someone to manage it after your death. If your heirs do not intend on taking over, a valuation may assist you in selling it before they face liabilities for taxes and expenses. Once you determine its market potential, you may consider disposing of it and sharing the proceeds with your heirs.

You and your heirs may decide that the current value of your business may offer a more favorable return now rather than later. If your estate does not wish to manage your enterprise, you may wish to consider a more reasonable plan for its future.