The proposed tax legislation is not yet passed, but if it does, it will take effect in 2022. President Biden has promised not to raise taxes on households that make $400,000 or less annually. This means that it is likely that the tax increases will affect households and businesses that are of higher net worth.

How Is Your Business Affected by the Proposed Estate Tax Changes?

If the legislation passes, the limits to estate tax exemptions will go from $10,000,000 to half of that, $5,000,000. You want the money to be tax-free when you set up a grantor trust to pass down your business and avoid probate. If this legislation passes, the transactions from the grantor to the trust will no longer be tax-free. And the business assets that are allocated to the beneficiaries will be subject to a gift tax.

Business Owners: Here’s What to Do

As we enter the final two months of 2021, you have time to make some changes and avoid some of the tax changes that are likely to happen in 2022.

  • Give Gifts Before 2022: The estate and gift exemption may decrease by half in 2022. If you were already planning to pass your estate onto your children, now is the time to make a move. The gift amount of over $5,000,000 of business assets in 2022 will be subject to a 40% estate tax.
  • Make Estate Planning Transfers Tax-Free: Make the sales transactions with your grantor trust using the existing tax laws that do not charge taxes on such transactions. You can put your business assets into the trust and avoid taxes on grantor trust strategies before 2022.
  • Review Your Estate Plan with an Expert: Meet with a trusted attorney today to review your estate plan. It is so important to review your estate plan yearly to account for major changes in your life as well as the law. These proposed tax legislations can change all strategies that you have in place, including life insurance, retirement, annuities, or other holdings where cash can pile up.

If you have business assets that you would like to protect from increased taxes, Shoup Legal is here to help. Give us a call at (951) 455-4114 or email us at [email protected] to get started on estate planning and tax strategies.