It isn’t easy running one’s own business. While the feeling of independence and self-sufficiency is nice, running a family business entails a certain degree of fiscal responsibility. You may have to raise capital, fix credit or improve cash flow problems. Just like any business, your family’s business has had to pay its fair share to the IRS.
If the owner of your family business is stepping down, due to poor health, to spend more time with a spouse in retirement, or even to move into an assisted living facility, then you may find yourself in a position to take it over. There are many routes that you take with it, but you need to consider the business’s financial standing above all else. Specifically, you need to evaluate the specifications that determine your standing with the IRS and other tax collection agencies.
When the owner of the family company resigns and designates their duties to you, you will then become responsible for keeping track of all financial matters. It is easy to make even the smallest mistakes when managing the company’s tax withholdings. To avoid this, make sure you are aware of all local, state and federal taxes which apply to the business.
If you plan on hiring your children to work at your family business, there are some important things to take into consideration that could help with capital budgeting. For example, your business will not be responsible for FUTA, or federal unemployment tax, on wages earned by your children. In addition, your business and your child will not be responsible for FICA taxes for Social Security and Medicare if your business is solely family-owned. These are huge considerations to keep in mind when deciding whether or not to bring your children onboard at the family business.
When filing taxes, it is now mandatory to prove that employers offer a certain degree of health insurance coverage to their employees. There are specific guidelines for small businesses regarding this matter, and it is now the responsibility of the new owner to abide by these.
If you are taking over ownership of your family’s business, then it’s probable that the previous owner already had health insurance squared away. Still, you’ll need to be aware of the laws and procedures regarding coverage for your business. For example, you might be tempted to make cell phone deductions. It’s very likely that your family’s company fall into the “small business” category when it comes to filing federal and state taxes.
Family Tax Breaks
A true family business often employs within the family. While it is not necessarily inadvisable to find unrelated workers, there are several tax benefits to hiring family members, no matter what type of organizational structure types your business utilizes. If you are taking over the business from the previous owner, then you may have already figured this out. If you plan to keep running the company, then it might be in your best interest to prioritize direct relatives as new hires.
If your family businesses uses contractors, you have to stay on top of payments. At the end of the year, you might want to issue a 1099 to each contractor. Be sure to follow the 1099 deadline along with other regulations to report income generated for your partners. Also, it will legitimize your expenses and allow your accountant to deduct the costs from COGs or operating expenses.
Family Tax Income Shifting
Depending on where your family members live, family income shifting could lower your self employment taxes liability. When the time comes to shift the business to another family member, consider a location with a lower tax bracket. Many family businesses partake in income tax shifting to lower their tax obligation year to year. In the situation where one family member has an asset that appreciates while another has an asset that depreciates, there is the opportunity to shift the income within the household. With the help of an accountant, you can successfully shift family business taxes within the rules and regulations laid out by the IRS.
You may even decide that it is best to sell the business or even discontinue it. If you decide that this is the most suitable option, just make sure that the company is not in a substantial amount of debt. Else, you might need an IRS fresh start. If it is necessary to close the business down, make sure any past due back taxes and other debts are manageable by the new would-be ownership.