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Tax laws benefit family business owners in New Jersey, part one

People work hard to build strong family businesses. Whether you are concerned with creating enough wealth to comfortably sustain your family, or you want to create a legacy to pass on to the next generation, a family business can be one of the most effective tools for doing so.

However, if tax planning is not an integral part of your estate plan, you or your beneficiaries may be faced with large tax penalties as the business changes ownership. Thankfully, the tax laws that were implemented for 2011 and 2012 can help individuals transfer assets in a more cost-effective manner.

The new laws increased the amount of money individuals and couples can give away without being penalized with a gift-tax. For individuals, the exemption was raised from $1 million to $5 million. For couples, the exemption was raised from $2 million to $10 million. The recent change in laws means that individuals can begin shifting wealth without paying taxes on the gifts, and it also protects the gift from future tax appreciation.

The change in the law creates a good opportunity for business owners to begin the succession of their businesses. Naturally, this poses an interesting problem for individuals who think they will eventually pass the business on but are not yet ready to do so. Business owners do not need to give up the reins to the business to benefit from the new laws, but they will need to make important decisions about the succession plans they have in mind.

Read more in the next post to learn about some of the techniques and strategies business owners are employing to help ensure a successful and gradual transition.

Source: The Wall Street Journal, "Family Businesses Catch a Big Break," Anne Tergesen 19 February 2011

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