Valuations for gifting amidst political uncertainty

By Jackson Arndt, Financial Analyst

Business valuations for gifting purposes are particularly relevant now due to uncertainty surrounding the upcoming election and the Tax Cuts and Jobs Act of 2017 (TCJA). The increased gift and estate tax exemption provided by the TCJA could end before its scheduled expiration in 2025.

Valuations may currently be lower due to economic and political uncertainty. Lower potential valuations coupled with allowable discounts present opportunities to leverage the valuable gift and estate tax exemption of $11.58 million. Valuing a business ensures accurate transfers without an excessive burden on the recipient.

For example, say a business owner gifted shares of their business valued at $1 million, but at the time of their death those shares appreciated in value to $5 million. By gifting early, the owner only used $1 million of their tax exemption. Assuming the estate would be a taxable estate, the $4 million gain escaped a 40% estate tax, for a savings of $1.6 million.

Increased gift tax exemptions paired with lower values create a unique opportunity to efficiently transfer assets and ownership interests. However, the window may be closing; the favorable gift tax environment is unlikely to last forever. Now is the time to act.

References

Barooshian, Laura; et al. “Uncertain Times Present Opportunity to Gift.” DiCicco, Gulman & Company LLP. 24 Aug. 2020. <www.dgccpa.com>.

Bauer, Robert; et al. “How Family Businesses Can Come Out on Top in Election Uncertainty.” Kansas City Business Journal. 1 May 2020. <www.bizjournals.com>.\