Cliff Fall Off in Small Business Year End Planning

By Bill Esler | Posted: 12/11/2012 6:00PM

 

Bill Esler woodworkingnetwork.com End of year is when many a small family woodworking business looks at its books and determines whether or not it is still, legitimately, in business. The ledger shows equity, which may consist of lumber inventory, work in progress, tools and machinery, and good will established among loyal customers.

If your good will has grown, and your customers are contractors, designers and commercial businesses likely return steadily for reorders, there is a business to hand on the another generation - provided there is interest among successors in operating a wood shop.

The lightening rod issue of estate taxes looms large here, as the debate in Washington rages around growing revenue and reducing deductions -and avoid of the Fiscal Cliff.

Our government representatives, who haven't provided guiding leadership in industrial policies, are missing an opportunity with the forest products industries in particular - with our abundance of timber resources and ready export markets.

Will they stumble once more in settling on an adjustment to the estate tax? If not handled properly, changes in estate tax can doom small businesses, like sawmills and lumbering operations, from continuing on to a succeeding generation. In short, to pay the tax bill, descendants have to sell the business, or in find ways reduce its taxable value that can harm it as an ongoing business.

It's true that the Internal Revenue Service allows agricultural-based businesses to make these payments in installments, but it places debt on the balance sheet and makes the business a less desirable loan applicant.

The President is proposing to raise the estate tax on inheritances from the current 35% up to 45%; and to tax the first $3.5 million of an estate's value (up from the current base of $5.12 - which could land-heavy put family-run forest and timber operations on the endangered list, as well as many architectural millwork businesses that have reached significant scale.

We should look elsewhere for revenue.

 

About the Author

Bill Esler, Woodworking Network, WMS

Bill Esler

Bill Esler, Editorial Director, Woodworking Network Bill is responsible for overall content at WoodworkingNetwork.com Woodworking Network magazine, and related newsletters. Bill also manages event programs for Woodworking Network Live conferences at the Woodworking Machinery & Supplies Expo in Toronto and Cabinets & Closets Expo. He developing audience engagement programs using custom digital printing, live lead-generating events, custom websites, and custom digital and print content. Read Bill Esler's woodworking blogs. He can be reached at besler@woodworkingnetwork.com or follow him on Google+.

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John Costin    
Maine  |  December, 21, 2012 at 07:13 AM

We are not facing a "Fiscal Cliff", though it makes for attention-grabbing headlines and instills a sense of panic in the average citizen that may make it easier to advance an agenda that would otherwise be unpopular because it advantages the few at the expense of the many. We are contending with a political stalemate reached a year ago because some members of Congress preferred posturing to problem-solving. Our real problem is that the government does not have enough revenue. There are some pretty obvious solutions. One is raising the estate tax. The vast majority of people who would be affected -- and an even greater majority of the revenue to be raised -- do not fit the "small farmer/small business" profile that lobbyists love to cite. They are people like the family that owns Walmart, who take everything they can from this country but are not particularly interested in giving anything back. If you look at the research on income disparity in this country, you will see that a huge contributing factor is the size of estates that are being handed down from generation to generation, while paying tax rates that are lower than those in just about any industrialized country in the world. I have a simple solution for the few true small businesses with working assets on the balance sheets that would put them over the line: form a corporation. The idea that we should starve our society because a few rare birds don't want to change the form of ownership of their companies is, in my opinion. lunatic. And for what it's worth, I do wish that WN would stop running political opinion pieces. I can and do read elsewhere much better-informed and better-thought out political pieces. I come here for woodworking news.

 

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