Sooner or later, you may decide to sell property you inherited from a parent or other loved one. Whether the property is an investment, an antique, land, or something else, the sale may result in a taxable gain or loss. But how that gain or loss is calculated may surprise you.

Your Basis

When you sell property you purchased, you generally figure gain or loss by comparing the amount you receive in the sale transaction with your cost basis (as adjusted for certain items, such as depreciation). Inherited property is treated differently. Instead of cost, your basis in inherited property is generally its fair market value on the date of death (or an alternate valuation date elected by the estate’s executor, generally six months after the date of death).

These basis rules can greatly simplify matters, since old cost information can be difficult, if not impossible, to track down. Perhaps even more important, the ability to substitute a “stepped up” basis for the property’s cost can save you federal income taxes. Why? Because any increase in the property’s value that occurred before the date of death won’t be subject to capital gains tax.

Example. Assume your Uncle Harold left you stock he bought in 1986 for $5,000. At the time of his death, the shares were worth $45,000, and you recently sold them for $48,000. Your basis for purposes of calculating your capital gain is stepped up to $45,000. Because of the step-up, your capital gain on the sale is just $3,000 ($48,000 sale proceeds less $45,000 basis). The $40,000 increase in the value of the shares during your Uncle Harold’s lifetime is not subject to capital gains tax.

What happens if a property’s value on the date of death is less than its original purchase price? Instead of a step-up in basis, the basis must be lowered to the date-of-death value.

Holding Period

Capital gains resulting from the disposition of inherited property automatically qualify for long-term capital gain treatment, regardless of how long you or the decedent owned the property. This presents a potential income-tax advantage, since long-term capital gain is taxed at a lower rate than short-term capital gain.

Be cautious if you inherited property from someone who died in 2010 since, depending on the situation, different tax basis rules might apply. Give us a call for details.

You’ve devoted time and money and poured heart and soul into building a successful family business. But do you have a succession plan? If not, you should. Without a plan for transferring your business to the next generation, anything could happen.

Deciding on Your New Role

Start by deciding how much or how little you want to be involved in the business after the transfer is complete. Are you picturing a clean break? Or a period of shared responsibilities and gradual transfer? This is an important decision because it will likely influence other decisions, particularly financial ones.

Choosing a Successor

This can get tricky, especially if there are several family members who may have an interest in — or expectation of — taking over the business. If there’s one clear candidate, that makes it easier. But don’t just assume someone (e.g., your oldest son) is the right successor. Do what’s best for the business. The best choice may be a grandchild, a niece, or even a relative paired with a trusted employee.

Estate planning is an important sidebar to a family business succession plan. There may be children who have no interest in being involved in running the business and are happy to let their siblings take over. However, they probably expect equal treatment when it comes to inheritances. If this is a likely scenario, make sure everyone communicates as clearly as possible and develop a plan you think is fair.

Grooming a Successor

Spend time grooming your successor, even if it’s a son or daughter who knows the business. He or she should understand how every part of the business operates. Before your successor starts representing your business publicly, make sure he or she meets your business contacts (clients, vendors, financial partners, etc.).

Figuring Out the Money

You probably don’t want to give your business away, even to your own offspring. Figure out how much you’re going to need to finance your next venture (retirement, a new business, etc.), and come up with an arrangement that meets your needs.

Take charge of your financial future. Give us a call, today, to find out how we can assist you and your business.

Increasing your profits requires selling more and/or spending less. While building up your sales may require an extended effort, business costs are often very ripe for a quick trimming. Here are some possibilities.

Supplies and Other Purchases

Usually in any business, relatively few items represent a very large share of all outlays. The first step in cutting expenses is, therefore, to identify your highest costs. You may be able to trim many of these costs by making sure you always bid out significant purchases or by more actively seeking less expensive alternatives.

For many companies, inventory carrying costs are a very significant expense. Focusing on matching your inventory quantities more closely to your short-term needs could result in significant savings.

Telecommunications and Other Services

The ongoing services you buy may also offer the potential for cost savings. Revisit your choice of telecommunications vendor and your usage.

Look carefully at your costs for financial services. If you borrow or maintain a line of credit, always compare the rates from more than one financing source before you commit. Make sure you are not paying higher-than-necessary fees for your company’s checking and deposit services.

Cash Management

To control cash outlays, take advantage of discounts for early payment whenever possible. And look to delay payments for as long as you can without giving up discounts.

On the receiving side, deposit all receipts daily. And always actively pursue collection of any invoices that are past due. To help control your working capital needs and, therefore, your credit costs, try to match any new liabilities to your anticipated cash flow.

Fixed Expenses

One other category worth examining is fixed expenses that are long-term commitments. While you usually can’t change these quickly, be aware of when a window for change will open and prepare well in advance by considering lower cost alternatives.

To learn more ways to control your business costs give us a call today. Our trained staff of professionals are always available to answer any questions you may have.