Different types of business entities are treated differently because of the way they are structured for tax purposes. In all cases, if the business is dissolved upon your death, the executor/executrix sells the business assets and pays any liabilities, including taxes, owed.
Single Member LLCs and Sole Proprietors
If you are a one-member limited liability company – a single-member LLC – your business is treated as a sole proprietorship for tax purposes. You report income on your personal 1040 via Schedule C. Thus, when you die, the executor/executrix files your taxes for you, just as if you would have filed. If you have a single-member LLC, you probably have an operating agreement that dictates what happens to your business upon your death. Otherwise, it passes through your will and/or trust. If you died intestate – without a will – your estate, including your business, is disbursed based on Florida’s inheritance laws.
Limited Liability Companies with Multiple Members
If your LLC has two or more members, you should have an operating agreement, and the agreement should tell other members what to do in the event of the death of one of the members. The agreement might allow the other members to have the right of first refusal to buy the deceased member’s share, or it might appoint a relative or another person to take over the deceased member’s interest in the LLC.
If the agreement does not dictate what happens to the deceased’s interest in the company, the interest is considered an asset of the deceased’s estate, which is then disbursed according to the deceased’s estate plan or by state law if the decedent died intestate. Assets may be sold to cover the deceased’s liabilities, including any taxes due.
If you registered your small business as a corporation, the corporation continues to run as before your death, even if you control 100 percent of the corporation. Because a corporation has stock to determine ownership, it is the stock that is part of the estate. The stock is dispersed according to your estate plan, or by Florida inheritance law if you die intestate.
Subchapter S Corporation
Only certain people can register a business as a subchapter S corporation. Unlike the rest of the types of corporations, the stock doesn’t automatically go to the person you elect in your estate or by inheritance laws because of the restrictions. When setting up a subchapter S corporation, you should discuss your choice with a business attorney and/or an estate lawyer to make sure your business continues to run smoothly after you pass.
Filing Requirements for Florida
According to the Florida Department of Revenue (page 16), certain entities do not have to file a tax return in the state, including estates of decedents and testamentary trusts. Sole proprietorships are also exempt from filing a state tax return upon the death of the business owner.
Filing Requirements for the Internal Revenue Service
Different types of businesses have different tax liabilities, including income tax, self-employment tax, employment taxes, and excise taxes. Your estate attorney should have the contact information for your accountant if you do not do your own taxes so that the two are able to work together to make sure your estate pays the appropriate taxes on your behalf after your death.
All businesses must pay taxes to the IRS, whether through an individual tax return for a sole proprietorship or a corporate tax return for most corporations. Your estate is responsible for paying these taxes, even if your business is distributed to another person or entity via the operating agreement or a corporation’s bylaws. Once the business changes hands, the new owner is responsible for the taxes.
Contact France Law
If you have a business, contact France Law regarding the laws regarding business taxes after your death. If you have an estate plan, you might need to make changes to the estate plan to facilitate the transfer of the business and the payment of any taxes due. If you do not have an estate plan, France Law will also help you create an estate plan that ensures your business is disbursed according to your wishes, taking into account the operating agreement or bylaws.