Selling equity
		Capital gains taxes
		Handing over the reins
		Estate taxes

Handing over the reins to your business means different things. It includes sharing some of the decision-making with other managers. It includes recruiting a successor to assume all decision-making. In other words, handing over the reins pertains to management decisions.

Handing over the reins may also mean transferring a stake in your firm to a spouse, family member, or charitable organization. On the other hand, it may mean selling your entire stake to a new buyer. These examples pertain to ownership decisions:

• Finding a successor to run your business. A major problem that small businesses face is finding a successor with the right set of skills, personality, and industry experience to run your business effectively after you leave. Small-business owners are often hands-on, "Type-A" personalities. As a result, handing over significant responsibilities to a new leader can be a challenge.
  
  If you fail to find a successor, or to groom an internal candidate to replace you, your business may founder when you retire. To avoid falling into the trap of a "successor problem," start identifying candidates early and developing the skills of potential successors.
  
  
• Transferring ownership to a spouse. You may decide to transfer some or all of your stake in the company to a spouse. Generally, a transfer of property is a non-taxable event.
  
  You will have to calculate a new basis when you transfer the property. Generally, fair market value (FMV) is used as the basis. For more on calculating the basis of a personal asset, see IRS Pub. 551. This publication explains how to calculate basis of assets for several scenarios, including:
  
  
  • Property transferred between spouses.
    
  • Property that is gifted.
    
  • Property that is inherited.
  
  
• Donating shares of your business to a charitable organization or other beneficiary. You may decide to give shares of stock in your business to a charitable organization. In order to take a deduction for gifts to charity, you must itemize your deductions. For information on giving to charitable organizations, see IRS Pub. 526.
  
  You may also choose to leave stock in a will or trust for your children, grandchildren, or other beneficiaries. If you choose to make a gift of stock to your beneficiaries, the annual exclusion for 2007 allows you to give up to $12,000 to each beneficiary, tax-free, each year. At higher amounts, you owe gift taxes on the additional value of the gift. For information on estate and gift taxes, see IRS Pub. 950.
  
  
• Selling to an outside investor or group of employees. You may plan on ultimately selling your company for millions of dollars and retiring to Aruba or the Bahamas. Selling your company to an outside investor, or even a group of employees, is a way to "cash out" and begin enjoying retirement. You may also be seeking to raise capital for a new venture and be looking to the proceeds of the sale of this company to start up a new one.
  
  Of course, such a straightforward sale of stock in your small business will likely trigger capital gains. In addition, if you only seek to sell some of your interest, you can expect a diluted stake to lead to your diminished role in the day-to-day affairs of running the business.
  
  Some of the main tax forms you may be required to complete when you liquidate some or all of your stock include:
  
  
  • Form 6252. IRS Form 6252 is used for installment sales. An installment sale allows you to earn annuity income and defer income taxes due on the sale.
    
    
  • Form 8824. IRS Form 8824 is used for making like-kind exchanges. A like-kind exchange is a non-taxable exchange of property for similar property. With like-kind exchanges, you owe capital gains tax when you sell the property you are acquiring as a result of the exchange.
    
    
  • Schedule D. Generally, Schedule D of IRS Form 1040 is used to report capital gains or losses. You may also have to complete Form 4797 for capital gains earned on certain transactions.

Next Topic: Estate taxes