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Business Tax6 min readMar 17, 2026
Business Succession Planning and Taxes
Transferring your business to the next generation or a third party requires careful tax planning. Here's how to structure a tax-efficient transition.
Business Succession Planning
Why Plan Early?
Succession planning should start 5–10 years before the expected transition. Early planning dramatically increases options and tax savings.
Transition Options
1. Sell to a Third Party
- Most liquidity
- Asset or stock sale structure determines tax treatment
- Installment sale spreads gain over time
2. Transfer to Family
- Gift interests over time using annual exclusion ($19,000/person)
- Family Limited Partnership (FLP): Transfer interests at a valuation discount (minority discount, lack of marketability)
- Grantor Retained Annuity Trust (GRAT): Transfer appreciation out of estate
3. Sell to Employees (ESOP)
Employee Stock Ownership Plan:
- Defer (sometimes eliminate) capital gains tax using the 1042 rollover
- Employees benefit from ownership
- Significant tax incentives for C-Corps
4. Management Buyout
- Current management acquires the business
- Seller financing common (installment sale)
Valuation Discounts
Family business interests can often be valued at a discount (20–40%) for minority interest and lack of marketability, reducing gift and estate tax.
Section 6166 Estate Tax Deferral
If the business is a large portion of the estate, estate taxes can be paid in installments over 14 years.
Planning to exit your business? A tax-efficient succession plan is worth planning years in advance.