Inherited Business: Tax & Succession Planning Overview

When you inherit a business—whether as a sole proprietorship, LLC partnership, or corporate stock—you face interconnected tax decisions involving valuation, entity law, and income reporting. Understanding your inheritance and acting on time-sensitive elections is critical to maximizing the stepped-up basis benefit.

The big planning areas:

• Stepped-up basis. Under IRC 1014, inherited assets generally receive a fair market value basis as of the date of death. For a business, determining what qualifies for step-up and what doesn't depends entirely on the entity type.
• Entity continuation. Some business structures dissolve automatically at the owner's death unless governing documents say otherwise. Whether the entity survives affects how income is reported and who files what returns.
• Valuation. The IRS requires a defensible fair market value for the business as of the date of death. This valuation sets your stepped-up basis and affects estate tax liability. Discounts for minority interests or lack of marketability may apply but invite scrutiny.
• Estate tax interplay. If the estate exceeds the federal exemption ($13.61 million in 2024), business assets may generate estate tax. Section 6166 allows installment payments of estate tax attributable to a closely held business.

What an inherited-business CPA does: They coordinate between the estate attorney, business appraiser, and ongoing operations to ensure the basis step-up is maximized, entity elections are timely, and you don't accidentally trigger taxable events while deciding what to do with the business.

The tradeoff: Every week of delay in understanding the entity structure and making required elections narrows your options. Time-sensitive elections like Section 754 adjustments or entity classification choices can expire, permanently increasing your future tax bill.