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Sunday, 01 April 2018 23:00

Key considerations for family-owned businesses

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Family-owned businesses have a few new items to sort through after the passage last year of the federal Tax Cuts & Jobs Act. Here is a look at some of the key considerations. 

  • GIFT MORE NOW? The federal tax reform law doubled the exemption possible under the estate and gift tax to $11.18 million for individuals and $22.36 million for married couples through the end of 2025. 
    Why it matters: Family business owners can shelter more substantial gifts of business interests to the next generation. 
  • RECLASSIFY? The new law drops the tax rate for C Corps to 21 percent, which has many family business owners considering moving away from S Corps, which are pass-through entities taxed on owners’ individual tax returns. S Corps got a 20-percent deduction that sunsets at the end of 2025, but the law placed income restrictions on owners to get the full deduction. 
    Why it matters: The law limits the S Corp deduction for individuals with taxable income below $157,500 or $315,000 for married couples. As well, changing a business tax classification also places certain decade-long limits on a company. 
  • WILL IT LAST? The Republican-controlled Congress passed the Tax Cuts & Jobs Act without bipartisan support, and it was signed by Republican President Donald Trump. Additionally, the gift and estate tax exemptions and the S Corp deduction will sunset at the end of 2025. 
    Why it matters: If Congress flips in the midterm elections and Democrats regain the presidency in 2020, they are likely to target the tax law — which none of them supported — for changes. Combined with the sunset provisions, the lack of long-term certainty could affect business owners’ planning. 
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