World Class Mergers & Acquisitions  |  For Companies $5 Million to $100 Million in Revenue

Mergers & Acquisition FAQ – October 2009

Q: I am the owner of an S Corporation.  If in any given year I do not take any money out of the company, will I have to pay taxes on the income from the business?

A: S Corporations are what is known as “flow through entities”.  If an S Corporation turns a profit, that profit flows through to the owner(s) of the company.  Regardless of what distributions or cash the owner takes from the company, the shareholder will see income from the profit of the company.

Q: What is the latest news with the estate tax?

A: The latest consensus is that the estate tax exemption will remain at $3.5 million.  For 2010, the exemption will be unlimited, but in 2011, it appears as though it will be $3.5 million.

Q: Because the country is in an economic downturn, does that affect the value of my business and are there any advantages to this?

A: Generally a down economy will lower a company’s value.  While a company’s value may go down during a recession, annual gift exemption amounts and the estate tax exemption remain the same.  Transferring or selling a business to a family member during a rough economic spell actually allows more stock to be transferred without running the risk of tax being assessed.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors