Estate taxes can create financial challenges for small business owners and their heirs. If proper planning isn’t in place, a significant portion of the business’s value could go toward taxes rather than staying within the family. Understanding how these taxes apply in Florida can help you prepare and protect your assets.
Does Florida have a state estate tax?
Florida does not impose a state estate tax. This means that when a business owner passes away, their estate is only subject to federal estate taxes if it exceeds the exemption threshold. For 2024, the federal exemption is $13.61 million per individual. Any amount above that is taxed at rates up to 40%.
How can estate taxes impact business assets?
If a business owner’s estate exceeds the federal exemption, the IRS may require taxes to be paid within nine months of death. This can create liquidity problems, especially if most of the estate’s value is tied up in business assets. Without enough cash on hand, heirs may have to sell parts of the business to cover tax obligations.
What strategies help reduce estate tax burdens?
Business owners can use several strategies to minimize estate taxes. One option is gifting portions of the business to heirs over time to reduce the taxable estate. Setting up trusts, such as a grantor-retained annuity trust (GRAT), can also help transfer assets efficiently. Life insurance policies designed for estate planning can provide liquidity to cover tax payments without disrupting business operations.
Protecting your business and heirs
Planning ahead ensures that estate taxes don’t force the sale of a business. Reviewing your estate plan regularly and using available tax exemptions and trusts can help preserve assets for future generations. By taking proactive steps, you can keep your business in the family without unexpected tax burdens.