Gifting LLC Interests

The current tax-free gift allowance is $12,000 per year, per person. So, if you and your spouse have three children, you could gift your kids $12,000 each, or $36,000 in total per year. Your spouse can do the same thing, meaning a grand total of $72,000 can change hands each year, tax-free! And these yearly gifts do not count against your $1 million lifetime gifting allowance.

But actually, it gets better. When gifting interests in business structures with restricted ownership, like LLCs, the IRS gives you a bit of extra leeway (in the form of increasing that $12,000 per person gift amount) to offset the fact that the interests you’re gifting can’t easily be sold. The added-value depends on several factors, not the least of which is the overall value of your LLC, but you should be able to add another $2-3,000 per child without incurring IRS scrutiny. However, this is not set in stone, and if you want to gift interests worth more than $12,000 per person, talk to your tax advisor first.

You can gift interests at any time during a calendar year, but traditionally, many people wait until the end of the calendar year. Before you gift any interests you will first need to have them valued by an independent business valuation expert. There are all kinds of rules and regulations around this, including how such valuation may be requested and paid for. As you can imagine, it’s a tricky area, and is definitely something that you want to do in consultation with your tax advisor.

The formalities for gifting interests are pretty simple: a notarized Deed of Gift is prepared, along with Minutes authorizing the transfer from one member to another. You can find a Deed of Gift along with sample Minutes in the accompanying materials.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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