Tax Planning For
Family Owned Businesses
Most closely held family owned businesses are S corporations (pays no tax) and that’s a good thing! Our recommendation is that a profitable family business should be operating as an S corp. but an LLC is also acceptable.
However a C corporation should be created for federal income tax purposes. The purpose of this entity would be to provide sales, marketing and admin services to the S corp. and on a regular basis the C corp. receives payment for services. The tax benefits that the C corp. provides the owner and selected employees are:
Qualified Retirement Plan Benefits — The C corp. adopts a 401 (K) or a profit sharing plan. This allows contributions for the benefit of it‘s employees.
Health Insurance — The C corp. pays for and deducts 100% of the health insurance premiums and also any uninsured medical or dental expenses that employees, spouses and dependents incur. There are also tax-free benefits to the owner/employee and other family members/employees.
Long-term Care — The C corp. could buy long-term care insurance for each of it’s employees and spouses — deduct 100% of the cost – the employees get the entire tax benefit free.
These strategies are one of the many used when doing the lifetime portion of your estate plan. The nice part of these strategies is that it is easy to start, maintain and flexible. Contact us if you would like to discuss your specific situation.
