If the entity is owned by all family members, the planning suggested may be entirely different than if the business is owned by a group who came together for business purposes or who share a common licensed profession. Surprisingly, while most clients will have no trouble at all answering the other questions, this one often has never been thought about.

The typical owner has his focus on his business and has given little or no thought to how, when, or even if he or she wants to have a life after business.

Many businesses started from scratch begin as sole proprietorships.

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They report their income or loss to the IRS and to their owners, and then each partner reports his or her share of the income or loss on the partners’ tax return and pays the resulting tax.

The one exception is that in the nine community property states, if the only partners are a husband and wife who file a joint income tax return, they may choose to treat the partnership like a sole proprietorship and disregard its existence for income tax reporting.

Does a son or daughter assume that they will someday be handed the business “on a silver platter”?

Does the spouse envision a life of romantic cruises paid for with the proceeds from selling the business?

Trusts Sometimes a sole proprietorship business is started in or transferred to a trust.

For income tax purposes, trusts come in two classifications—“grantor trusts,” the income and losses of which are treated for income tax purposes as being those of the person who contributed the assets to the trust, and “non-grantor trusts,” which are treated as separate taxpaying entities for income tax purposes.

When a closely held business is a significant part of a client’s estate, as is often the case, business succession planning becomes an important part of the client’s estate planning.

Estate planning issues include how to turn the business into cash for the owner’s retirement, who will take over or buy the business from the owner (family members, an outside buyer, employees, key employees, other owners), and how the sale should be structured.

Some grantor trusts choose to file zero income tax returns and others do not, instead counting on the deemed owner to report the income and deductions on his or her personal income tax return.

Planning Tip: Through careful drafting it is possible to create a trust that is disregarded for income tax purposes, but not for gift and estate tax purposes. Ownership matters because it can limit the tax planning choices.

C corporations are tax paying entities, just like individuals.