Top Tax Considerations for Business Succession
December 13, 2025
Passing a business down feels like handing over a story you wrote with sweat, late nights, and countless decisions. But stories don’t end simply because the author steps away. They twist, they turn, and sometimes they face battles no one saw coming.
Taxes, for example. They’re more than numbers on a page; they’re silent players that can change everything when you least expect it.
And in the world of business succession, understanding those tax shadows is smart and necessary. But what exactly should you watch out for? That’s where the real story begins.
1) Estate Taxes Can Still Apply to Small Business Owners
Plenty of small businesses are asset-rich, even if their cash flow is modest. Commercial property, equipment, trademarks, and client contracts can quietly add up. Once you factor in your business valuation plus your personal home, retirement accounts, and life insurance, it’s not hard to cross the line.
“2025 Federal Estate Tax Exemption:
$13.61 million per individual
~$27.22 million for married couples”
(Source: IRS, Unified Credit under §2010(c))
This looks generous for now, but there’s a deadline ticking. Unless Congress steps in, the exemption gets cut roughly in half after 2025, dropping to around $6 million per person. That puts a lot more small business owners in the taxable range than most people assume.
And here’s the catch: Florida doesn’t have its own estate tax, but that doesn’t make you immune. The federal estate tax rate can reach 40% once you exceed the exemption.
So no, being “small” doesn’t guarantee safety. If your business owns property, holds patents, or carries real value in goodwill, your heirs could be facing a surprise tax bill, one that could force them to sell assets just to pay it.
2) Why You Need a Professional Valuation for Your Business
Many owners lean on informal estimates when valuing their business—especially during succession planning—but that guesswork can lead to major tax issues. When it’s time to transfer ownership or pass the business through an estate, the IRS expects proper documentation backed by a qualified, credentialed appraisal. Without it, both the owner and successor risk unexpected tax assessments.
IRS Requirement:
Qualified appraisals are required for business transfers during estate or gift planning.
“Undervaluation can result in penalties up to 40% of the tax understatement.”
(Source: IRS Code §6662, Valuation Misstatements)
An inaccurate valuation doesn’t just throw off the math; it can open the door to penalties, audits, and legal complications. If your business has real assets, growth potential, or a unique market position, its true value needs to be on paper and defensible. A professional valuation keeps the plan clean, protects your successors, and prevents disputes before they start.
3) Should You Transfer Shares Now or Later?
Thinking about handing over your business before you're gone? Moving shares during your lifetime offers tax-smart advantages, yet each choice brings its own tradeoffs.
Giving equity now helps shrink your taxable estate. That means less exposure to federal estate taxes when the time comes. Plus, your heirs can start benefiting from earnings or appreciation right away.
“2025 IRS Annual Gift-Tax Exclusion:
$18,000 per recipient per year”
(Source: IRS Annual Gift Tax Exclusion, 2025)
Going over the limit means you have to report gift tax but most people can use their lifetime exemption to avoid paying. Still, the paperwork and rules make it a hassle.
Transferring shares post-death means heirs may enjoy a step-up in basis to current market value. If they sell later, this reduces capital gains taxes. That rollover can be a major financial win, especially in fast-growing businesses.
Choosing when to transfer requires balancing present-day estate shrinkage and possible gift-tax consequences against the future benefit of a stepped-up basis. Each path has its own tax implications, so tailor the strategy to your long‑term goals and your heirs’ situation.
4) How FLPs and Trusts Help With Business Succession
Family Limited Partnerships (FLPs) and Grantor Retained Annuity Trusts (GRATs) are popular tools for transferring business ownership gradually while keeping control in the hands of the original owner. FLPs, in particular, may allow valuation discounts on non-controlling interests due to limited marketability or lack of voting rights.
But these benefits only hold up if everything is properly documented and has a clear business purpose. If the structure looks sloppy or purely tax-driven, the IRS may step in and challenge the advantages.
The IRS pays close attention to FLPs that appear to lack legitimate business purposes. A flawed structure or failure to follow partnership formalities can lead to full revaluation and penalties.
5) Don’t Overlook Life Insurance in Your Business Exit Plan
Life insurance is a go-to method for funding buy-sell agreements, allowing a smooth transfer of ownership when a business partner exits or passes away. Ownership of the policy determines how the payout is taxed. Policies owned by the business are treated differently from those held by individual owners.
Cross-purchase agreements involve each owner holding policies on the others. Entity-purchase agreements place ownership with the business itself. Both have different consequences for taxation, reporting, and deductibility.
“Life insurance tax treatment depends on the ownership structure, and proceeds may be taxable if not planned properly.”
(Source: Tax Policy Center, Life Insurance and Estate Tax Planning, 2023)
Proceeds from policies held by the business may be included in the taxable estate or treated as income in some cases. Agreements should be reviewed alongside policy ownership to avoid surprises.
6) Your Business Structure Affects Your Succession Taxes
Sole proprietorships, partnerships, S-Corporations, and C-Corporations all come with different rules for taxes, ownership, and succession planning. For instance, if you transfer S-Corp shares to the wrong kind of trust—like a non-grantor trust—it can automatically terminate the company’s S-Corp status, triggering unintended tax consequences.
C-Corporations, on the other hand, may face double taxation: first, when the business sells its assets, and again when the profits are distributed to shareholders as dividends.
Without a clear succession plan that accounts for entity structure, heirs may face unnecessary taxes or disputes over ownership.
Each structure triggers different obligations, from capital gains to corporate income taxes. A review of bylaws or operating agreements is necessary to identify risks and close loopholes.
7) State Taxes May Still Affect Your Business Succession
Florida doesn’t have estate or inheritance taxes, but if the business owns property or operates in states like New York or Massachusetts that do, it could still face tax liabilities there. Multi-state businesses are often subject to additional estate, inheritance, or income taxes outside Florida.
State-level rules vary and are not always based on the owner's primary residence.
“13 states currently impose estate or inheritance taxes, and businesses with multi-state presence may be affected.”
(Source: Tax Foundation, 2024 State Estate and Inheritance Tax Chart)
Some states trigger nexus rules with minimal activity. If you lease property, keep inventory, or hire remote workers in another state, that state may claim taxing rights. Even when your headquarters sits in Florida, you still need to account for tax exposure elsewhere.
8) What If You’re Not Passing the Business to Family?
Passing the business to a child isn’t the only path forward. Some owners opt to sell to employees through Employee Stock Ownership Plans (ESOPs). Others transfer ownership to charitable organizations through donor-advised funds or charitable remainder trusts.
Each alternative has its own reporting rules, valuation requirements, and tax impacts. When structured correctly, they can support retirement goals while securing the future of the company.
“ESOPs are subject to fiduciary rules, annual valuations, and reporting obligations under federal law.”
(Source: U.S. Department of Labor, ESOP Statistics & Compliance Guide, 2023)
Properly managed ESOPs can provide liquidity for owners while creating a sense of ownership among employees. They also require careful compliance with ERISA standards and IRS reporting.
Still working through the tax details? You might find clarity in our other posts.
Planning to Step Away From Your Business? Apex Advisor Group Helps You Avoid Tax Trouble During Succession
Exiting a business requires more than a handshake and a valuation. Timing, documentation, and tax elections all influence how much stays in your pocket and how much goes to the IRS. Decisions around ownership transfers, insurance funding, or trust planning can carry lasting tax effects.
Apex Advisor Group works with business owners to identify risk areas early and structure clean, tax-efficient exits.
Contact Apex Advisor Group to make your transition smooth, strategic, and tax-ready.