Transferring Stock and Business Succession

Discussion in 'Accounting and Taxes' started by MrEazyRider, Jul 20, 2017.

  1. MrEazyRider

    uix_expand uix_collapse
    New Member

    Apr 3, 2013
    Likes Received:

    I currently work for my grandfather's company that he started many decades ago. He's looking to transfer the ownership of the company to me but we have come upon some tax issues that are making it difficult.

    The original plan was for me to purchase the company and for him to finance it. I don't know all the details but he decided it was a no go because of tax issues and I don't have the assets to acquire an SBA.

    He presented this option to me: he will gift me 20 shares (out of 100) this year. For argument's sake, let's assume the company's worth is $1M and he purchased the company for $100k.

    If he gifts me 20 shares worth $200k today, will either of us owe taxes on this amount? I've read that the annual untaxable gift amount is $14k, which is clearly much lower than the amount that he's looking to gift me. I do not understand the difference between the yearly exclusion and the lifetime $5.43M exclusion and I'd like to figure out how the two relate.

    From some things I've read, it appears the amount would be taxed since the value of the gift is over $14k, but how can this be taxed if the $200k is far below the $5.43M lifetime gift? He has not given any other gifts so the lifetime gift amount is far from capped.

    Is the amount he's gifting based on the purchased value ($20k) of the stock? I've been tossing this idea around in my head: since there's no cash involved here, he's basically transferring me ownership in the company and I will have to deal with the capital gains, should I choose to sell. I would have to pay capital gains on $180k because the original price for that stock (20%) was $20k.

    Am I right here, or missing the boat completely? Any help would be great!


Share This Page