Now is a good time for small business owners to review their business succession plans. The American Taxpayer Relief Act (“ATRA”), which was signed into law on January 2, 2013, brings much needed certainty to federal estate tax law. It also provides some meaningful tax relief. This should enable small business owners to be more flexible in their plans to pass all or a portion of their businesses to the next generation or to sell their businesses to third parties and gift or bequeath some or all of the proceeds to the next generation.
The new $5.25 million permanent estate tax exemption (indexed annually for inflation) and the “portability” option included in ATRA enable small business owners to transfer all or a substantial portion of their businesses without facing significant estate tax burdens. The changes also allow opportunities to increase the owners’ tax basis in their businesses, saving future capital gains taxes. Business owners should retrieve their existing business succession plans and review them with their advisors to see if they can take advantage of the planning and tax savings opportunities afforded by ATRA.