Why is planning for the impact of gift and estate taxes particularly important for a small business?

Every taxpayer’s estate is potentially subject to federal gift and estate taxes upon the death of the taxpayer. If you own a small business, that business may become part of your estate and, therefore, be subject to estate taxes. The problem is that many new businesses, as well as certain types of businesses such as ranching and farming operations, can be short on liquid assets. The value of the business is often tied up in start-up expenses, inventory, equipment, livestock, and other non-liquid assets. The value of your business, however, will include all of those assets. If your estate owes gift and estate taxes, and the estate lacks sufficient liquid assets with which to pay the taxes, assets owned by the business might have to be sold to satisfy the tax obligation. Planning ahead is the best way to prevent putting your business at risk.