The looming sunset of the Tax Cuts and Jobs Act (albeit three years out at the end of 2025) has already begun to surface. The significant changes which positively impacted individuals may be overhauled. Most of the business provisions are permanent.

For individual taxpayers the top rate increases from 37% to 39.6%. Deductions are a mixed bag. What will happen to the state and local tax (SALT) itemized deduction, which was reduced to $10,000 annually?

The potential reset of estate and gift tax provisions will have the biggest impact on individuals. The gift and estate tax exemption of approximately $12 million per person could well be cut in half. The guidance of your estate tax attorney and tax accountant should be sought now, to layout a plan for conserving the wealth accumulated in the last few years.

Valuation Issues

While not a panacea, some or all of the following might be pursued:

  1. Determine which assets should be valued (e.g., real estate) and considered for gifting. For Private Equity, this might be carried interest.
  1. If you own shares or options in an early-stage company, explore the 83(b) election to cap the Federal tax. For common shares in your business, is the timing right to gift a discounted share value to your children and/or grandchildren?
  1. What asset(s) can you contribute to a charity for a deduction?
  • Stock in your company before a pending sale
  • Life insurance policy
  • Easement or conservancy
  1. Perform cost segregation on acquired real property to maximize personal property and Federal tax depreciation. This analysis should also be done for any income producing stepped up property values (post death).
  1. Identifying and supporting personal goodwill as part of a company sale, which reduces Federal income taxes.
  1. Arranging tax deferral strategies (e.g., instalment sales) upon the sale of a business.

We suggest you start planning now to take advantage of the current high lifetime exemption. In addition, you want to allow maximum time to assess, plan, and appraise your most valuable assets.