The clock is ticking. Key provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire, and the political landscape suggests that significant changes to the tax code are on the horizon. For business owners, the question is not whether things will change but how those changes will affect your bottom line and your exit strategy.
The smartest business owners are not waiting for legislation to pass before taking action. They are working with their advisory teams right now to position themselves for whatever comes next. Here is what they are doing and why you should be paying attention.
What Is at Stake
Several provisions that have benefited business owners are at risk of changing:
- Qualified Business Income (QBI) Deduction: The 20% pass-through deduction could be reduced or eliminated, significantly increasing the tax burden for S-Corp, LLC, and partnership owners
- Estate and Gift Tax Exemptions: The current historically high exemption levels are scheduled to revert to roughly half their current amounts, meaning more of your estate could be subject to estate taxes
- Capital Gains Rates: Proposals have included increasing capital gains tax rates, particularly for high-income taxpayers, which would directly impact the after-tax proceeds from selling a business
- Corporate Tax Rates: There is ongoing discussion about increasing the corporate tax rate, affecting C-Corps and potentially influencing entity structure decisions
What Smart Owners Are Doing
Accelerating Exit Timelines
Owners who were planning to sell in the next two to five years are evaluating whether it makes sense to accelerate their timeline. Selling before tax rates increase could mean hundreds of thousands, even millions, of dollars in tax savings depending on the size of the transaction.
Maximizing Estate Planning Opportunities
With the estate and gift tax exemption at historically high levels, now is the time to transfer wealth to the next generation. Strategies include:
- Gifting business interests to family members or trusts
- Establishing Grantor Retained Annuity Trusts (GRATs)
- Creating family limited partnerships for asset protection and transfer
- Using the lifetime exemption before it potentially decreases
Reviewing Entity Structure
Changes to tax rates and deductions may make your current business entity structure less advantageous. Smart owners are reviewing whether their LLC, S-Corp, or C-Corp structure still makes sense given potential changes and are planning conversions if needed.
Implementing Tax-Efficient Compensation Strategies
Business owners are working with their CPAs to optimize the balance between salary and distributions, maximize retirement plan contributions, and take advantage of deferred compensation arrangements while current rules apply.
Locking In Current Benefits
Certain strategies allow you to lock in current tax benefits regardless of future changes. These include accelerated depreciation on assets, Roth IRA conversions at current tax rates, and charitable giving strategies that provide immediate deductions.
The Cost of Waiting
Many business owners adopt a wait-and-see approach to tax planning. While this may feel prudent, it can be extremely costly. By the time new legislation passes, the window to take advantage of current rules may have already closed.
"In my experience, the business owners who regret their tax planning decisions are almost always the ones who waited too long. Proactive planning is not about predicting the future; it is about being prepared for any outcome."
Your Action Plan
Here is what you should do now:
- Schedule a meeting with your advisory team to review your current tax position and exposure
- Model different scenarios to understand how potential tax changes would affect your business and personal wealth
- Identify time-sensitive opportunities that you should act on before year-end or before new legislation takes effect
- Review your estate plan and ensure it takes advantage of current exemption levels
- Consider accelerating major decisions such as a business sale, restructuring, or wealth transfer
At SWYFT Desk, we help business owners understand the intersection of tax strategy, succession planning, and wealth preservation. The landscape is changing, and the time to act is now.