Estate and Gift Tax Sunset: What Business Owners Must Know
Individual Tax Return (1040)
A major estate tax and gift tax change could cost business owners millions if they don’t plan ahead. Right now, individuals can transfer up to $13.61 million tax-free during their lifetime or at death. However, that amount will drop by nearly half unless Congress acts in 2026, potentially exposing more wealth to estate and gift taxes.
This could mean significantly higher taxes on ownership transfers to family members or trusts for business owners. Acting now may be the difference between passing down wealth tax-free or losing millions to the IRS.
The Change That’s Coming
The federal estate and gift tax exemption is currently at a historic high, allowing individuals to transfer $13.61 million tax-free in 2025, or $27.22 million for married couples. This exemption, created by the 2017 Tax Cuts and Jobs Act (TCJA), is set to expire at the end of 2025, reverting to pre-2018 levels.
In 2026, the exemption is expected to drop to approximately $7 million per person (or $14 million for a couple). The tax rate on amounts above the exemption will remain at 40%, meaning business owners who wait could face millions in unnecessary tax liabilities.
What Happens If You Wait?
Consider this scenario: Mark owns a manufacturing company currently valued at $25 million. He wants to transfer ownership of 75% of his business to his children through a trust. By using valuation discounts, he can lower the taxable value of the gift. This is because of a lack of control and marketability.
The difference in Mark’s tax burden is substantial depending on whether he acts now or waits until 2026:
If Mark transfers the shares in 2025, the taxable gift of $13.125 million is fully covered by the exemption, meaning he owes nothing in taxes. However, if he waits until 2026, the exemption drops to $7 million, leaving more than $6 million exposed to the 40% gift tax—resulting in a $2.45 million tax bill that could have been avoided.
This example assumes the business value stays the same. If the company grows in value, the tax liability in 2026 could be even greater.
Why Business Owners Need to Act Now
Transferring ownership before the exemption ends is not just about saving money—it’s about securing the future of your business. Delaying could result in a heavier tax burden, less wealth passed on to the next generation and limited flexibility in estate planning.
The IRS requirements for gifts over $18,000 in 2024, need to be reported on a gift tax return. Gifts over $18,000 require a qualified appraisal attached to the gift tax return to support the fair market value. As 2026 gets closer, the need for business valuations is likely to increase dramatically. This may cause longer wait times and delays in estate planning. Those who act early will avoid last-minute complications and rushed valuations.
Another important reason to plan ahead is to use valuation discounts. These discounts reduce the taxable value of a transferred business interest. If the IRS challenges a valuation, a well-documented report from a qualified professional can help defend against unnecessary tax penalties.
Finally, waiting until the last minute could mean facing unexpected complications. Legislative changes, IRS scrutiny and shifting market conditions all add uncertainty. Business owners who act now can lock in today’s favorable tax treatment and avoid being caught in a wave of rushed transactions as 2025 comes to a close.
What Business Owners Should Do Now
If you are considering a business transfer or estate plan update, now is the time to act. Waiting until late 2025 could mean missed opportunities, increased costs and unnecessary tax liabilities.
The best way to prepare is to plan now. Business owners should talk to estate planning experts and valuation specialists. They can help find the best way to transfer ownership and save on taxes. The earlier a valuation is completed, the more options remain available.
At KerberRose, we have a team specializing in providing accurate, defensible business valuations to support estate planning strategies. If you have questions about how these tax changes may impact your business, we’re here to help. Contact us today to begin your business valuation before it’s too late.
Related Posts
Estate and Gift Tax Sunset: What Business Owners Must Know
Individual Tax Return (1040)
A major estate tax and gift tax change could cost business owners millions if they don’t plan ahead. Right now, individuals can transfer up to $13.61 million tax-free during their lifetime or at death. However, that amount will drop by nearly half unless Congress acts in 2026, potentially exposing more wealth to estate and gift taxes.
This could mean significantly higher taxes on ownership transfers to family members or trusts for business owners. Acting now may be the difference between passing down wealth tax-free or losing millions to the IRS.
The Change That’s Coming
The federal estate and gift tax exemption is currently at a historic high, allowing individuals to transfer $13.61 million tax-free in 2025, or $27.22 million for married couples. This exemption, created by the 2017 Tax Cuts and Jobs Act (TCJA), is set to expire at the end of 2025, reverting to pre-2018 levels.
In 2026, the exemption is expected to drop to approximately $7 million per person (or $14 million for a couple). The tax rate on amounts above the exemption will remain at 40%, meaning business owners who wait could face millions in unnecessary tax liabilities.
What Happens If You Wait?
Consider this scenario: Mark owns a manufacturing company currently valued at $25 million. He wants to transfer ownership of 75% of his business to his children through a trust. By using valuation discounts, he can lower the taxable value of the gift. This is because of a lack of control and marketability.
The difference in Mark’s tax burden is substantial depending on whether he acts now or waits until 2026:
If Mark transfers the shares in 2025, the taxable gift of $13.125 million is fully covered by the exemption, meaning he owes nothing in taxes. However, if he waits until 2026, the exemption drops to $7 million, leaving more than $6 million exposed to the 40% gift tax—resulting in a $2.45 million tax bill that could have been avoided.
This example assumes the business value stays the same. If the company grows in value, the tax liability in 2026 could be even greater.
Why Business Owners Need to Act Now
Transferring ownership before the exemption ends is not just about saving money—it’s about securing the future of your business. Delaying could result in a heavier tax burden, less wealth passed on to the next generation and limited flexibility in estate planning.
The IRS requirements for gifts over $18,000 in 2024, need to be reported on a gift tax return. Gifts over $18,000 require a qualified appraisal attached to the gift tax return to support the fair market value. As 2026 gets closer, the need for business valuations is likely to increase dramatically. This may cause longer wait times and delays in estate planning. Those who act early will avoid last-minute complications and rushed valuations.
Another important reason to plan ahead is to use valuation discounts. These discounts reduce the taxable value of a transferred business interest. If the IRS challenges a valuation, a well-documented report from a qualified professional can help defend against unnecessary tax penalties.
Finally, waiting until the last minute could mean facing unexpected complications. Legislative changes, IRS scrutiny and shifting market conditions all add uncertainty. Business owners who act now can lock in today’s favorable tax treatment and avoid being caught in a wave of rushed transactions as 2025 comes to a close.
What Business Owners Should Do Now
If you are considering a business transfer or estate plan update, now is the time to act. Waiting until late 2025 could mean missed opportunities, increased costs and unnecessary tax liabilities.
The best way to prepare is to plan now. Business owners should talk to estate planning experts and valuation specialists. They can help find the best way to transfer ownership and save on taxes. The earlier a valuation is completed, the more options remain available.
At KerberRose, we have a team specializing in providing accurate, defensible business valuations to support estate planning strategies. If you have questions about how these tax changes may impact your business, we’re here to help. Contact us today to begin your business valuation before it’s too late.
Estate and Gift Tax Sunset: What Business Owners Must Know
Individual Tax Return (1040)
A major estate tax and gift tax change could cost business owners millions if they don’t plan ahead. Right now, individuals can transfer up to $13.61 million tax-free during their lifetime or at death. However, that amount will drop by nearly half unless Congress acts in 2026, potentially exposing more wealth to estate and gift taxes.
This could mean significantly higher taxes on ownership transfers to family members or trusts for business owners. Acting now may be the difference between passing down wealth tax-free or losing millions to the IRS.
The Change That’s Coming
The federal estate and gift tax exemption is currently at a historic high, allowing individuals to transfer $13.61 million tax-free in 2025, or $27.22 million for married couples. This exemption, created by the 2017 Tax Cuts and Jobs Act (TCJA), is set to expire at the end of 2025, reverting to pre-2018 levels.
In 2026, the exemption is expected to drop to approximately $7 million per person (or $14 million for a couple). The tax rate on amounts above the exemption will remain at 40%, meaning business owners who wait could face millions in unnecessary tax liabilities.
What Happens If You Wait?
Consider this scenario: Mark owns a manufacturing company currently valued at $25 million. He wants to transfer ownership of 75% of his business to his children through a trust. By using valuation discounts, he can lower the taxable value of the gift. This is because of a lack of control and marketability.
The difference in Mark’s tax burden is substantial depending on whether he acts now or waits until 2026:
If Mark transfers the shares in 2025, the taxable gift of $13.125 million is fully covered by the exemption, meaning he owes nothing in taxes. However, if he waits until 2026, the exemption drops to $7 million, leaving more than $6 million exposed to the 40% gift tax—resulting in a $2.45 million tax bill that could have been avoided.
This example assumes the business value stays the same. If the company grows in value, the tax liability in 2026 could be even greater.
Why Business Owners Need to Act Now
Transferring ownership before the exemption ends is not just about saving money—it’s about securing the future of your business. Delaying could result in a heavier tax burden, less wealth passed on to the next generation and limited flexibility in estate planning.
The IRS requirements for gifts over $18,000 in 2024, need to be reported on a gift tax return. Gifts over $18,000 require a qualified appraisal attached to the gift tax return to support the fair market value. As 2026 gets closer, the need for business valuations is likely to increase dramatically. This may cause longer wait times and delays in estate planning. Those who act early will avoid last-minute complications and rushed valuations.
Another important reason to plan ahead is to use valuation discounts. These discounts reduce the taxable value of a transferred business interest. If the IRS challenges a valuation, a well-documented report from a qualified professional can help defend against unnecessary tax penalties.
Finally, waiting until the last minute could mean facing unexpected complications. Legislative changes, IRS scrutiny and shifting market conditions all add uncertainty. Business owners who act now can lock in today’s favorable tax treatment and avoid being caught in a wave of rushed transactions as 2025 comes to a close.
What Business Owners Should Do Now
If you are considering a business transfer or estate plan update, now is the time to act. Waiting until late 2025 could mean missed opportunities, increased costs and unnecessary tax liabilities.
The best way to prepare is to plan now. Business owners should talk to estate planning experts and valuation specialists. They can help find the best way to transfer ownership and save on taxes. The earlier a valuation is completed, the more options remain available.
At KerberRose, we have a team specializing in providing accurate, defensible business valuations to support estate planning strategies. If you have questions about how these tax changes may impact your business, we’re here to help. Contact us today to begin your business valuation before it’s too late.