If your business owner is charitably inclined...
...but also likes better tax treatment, let's talk through the concept of Qualified Opportunity Zones.
Qualified opportunity zones (QOZs) are areas in the United States that are eligible for special tax incentives to encourage investment and economic development. They were created by the Tax Cuts and Jobs Act of 2017 (TCJA) and cover over 8,700 low-income communities across all 50 states, the District of Columbia, and five U.S. territories.
You can defer or eliminate long term capital gains on sales (like, of your privately held company). Keep the basis, move the gain into a qualified opportunity fund. Any future appreciation on their QOF investment from can be shielded from taxation if they hold it for at least 10 years.
The tax benefits of QOZs are designed to attract long-term capital to these distressed areas and stimulate economic growth, job creation, infrastructure improvement, and community revitalization. According to the U.S. Department of Housing and Urban Development, QOZs can also support affordable housing, environmental justice, public safety, health care, education, and workforce development.
?QOZs also provide estate planning opportunities for investors who want to transfer their wealth to their heirs or beneficiaries in a tax-efficient manner. By deferring and reducing their capital gains taxes, investors can increase their after-tax returns and preserve more of their capital for future generations. Moreover, by holding their QOF investment for at least 10 years, investors can eliminate any federal income tax on the appreciation of their QOF investment, which can significantly enhance their legacy.
You could lose money, and the regulations are new. So, QOZs are subject to complex and evolving rules and regulations that may affect their eligibility and compliance. QOZs also require a substantial and sustained commitment of capital and time, which will usually limit investor liquidity. QOZs also depend on the economic and social conditions of the local communities, which may vary widely and unpredictably. Therefore, investors and estate planners should carefully evaluate the potential benefits and drawbacks of QOZs before making any decisions.
Move it or lose it. At the time of this publishing, Estate Tax sunsets in 2026, less than 21 1/2 months from now. "Move it" means using your unified credits and/or annual gift exclusions to get assets outside of your estate. If done well, you'll still have some access to it. "Lose it" is flunking the Darwin test, by exposing your assets to state inheritance and Federal estate taxation.
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In a fifteen minute conversation, we can usually discover 3 to 5 gaps that most small to medium business owners have - and then, get on a path to solve those problems.
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