As 2025 approaches, business owners should be mindful of potential tax changes that could significantly impact their financial outcomes after selling their business. The U.S. Federal Estate and Gift Tax Exemptions established by the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire, depending on the results of the upcoming election. If these exemptions sunset, married couples could lose approximately $14 million in tax benefits on the sale of their company. Considering that selling a business often takes over a year, many owners are accelerating their plans to benefit from the current, more favorable tax laws.
Table of Contents
The Current Estate Tax Landscape
Impact on Family-Owned Businesses and Entrepreneurs
Opportunity for M&A Transactions: Planning an Extraordinary Exit
Key Considerations for an Extraordinary Exit
The Current Estate Tax Landscape
The 2017 Tax Cuts and Jobs Act (TCJA) nearly doubled the lifetime estate and gift tax exemption, increasing it from $5.6 million to $11.18 million per individual, with adjustments for inflation after 2018. By 2024, the indexed exemption has risen to $13.61 million ($27.22 million for married couples) and will be approximately $14 million ($28 million for married couples) in 2025, providing significant relief for many business owners by allowing them to transfer substantial wealth with reduced tax implications.
However, this relief could be temporary. In 2026, the exemption is expected to revert to approximately $7 million for individuals and $14 million for married couples unless the U.S. Congress acts to extend the current limits. This shift would leave many savers, small business owners, landowners, and farmers, among others, exposed to significant tax bills.
Impact on Family-Owned Businesses and Entrepreneurs
For family-owned businesses and entrepreneurs, the potential tax changes ahead present important considerations. If your business value exceeds $7 million ($14 million for married couples) or if you anticipate growth beyond these amounts, it’s essential to start planning and potentially accelerating your business sale.
Opportunity for M&A Transactions: Planning an Extraordinary Exit
The upcoming tax changes create a strategic window of opportunity for Mergers and Acquisitions (M&A). Since the process of selling a business can take 6 to 12 months or more, waiting too long could result in missing out on up to $14 million in tax benefits. By selling your business before the end of 2025, you can maximize your use of the current exemption limits and avoid potential tax burdens that could arise if you wait.
However, an Extraordinary Exit requires more than just timing; it demands careful planning and consideration of various factors.
Key Considerations for an Extraordinary Exit
Have you considered the outcomes?
What outcomes are required (must-have) or preferred (nice-to-have)? This includes valuation expectations, exit timing, plans for the existing management team, your role, and more.
Have you explored all of your exit options?
Whether selling to strategic or financial buyers, a well-planned exit involves evaluating and comparing every option available.
Is your exit team in place?
Having the right team is essential. This can include the leadership team, coach, sell-side advisor, estate planner, lawyer, accountant, tax advisor, and deal CFO, among others.
Have you imagined your life after a sale?
Legacy is important. Imagine life after an exit: what do you see? What does an ideal exit, and life after an exit, look like to you? Take time to reflect on the future and your goals.
Are your financials in order?
Are your financials audited or reviewed? Are there personal or other expenses in the P&L that would cease with new ownership? It is critical to have clean financials with straightforward explanations and analysis.
Who do you believe could be a strategic buyer?
What is the strategic value your business brings to the buyer? What are your “Rembrandts in the Attic,” and how does your business improve the buyer’s competitive position and vice versa?
To maximize the outcome of your business sale, it’s essential to explore strategies like restructuring, tax planning, and comprehensive estate planning. Engaging with professionals, like STS Capital, who specialize in these areas can help ensure that your business sale is optimized for the best possible outcome.
Conclusion
“With the current estate and gift tax exemptions set to sunset after 2025, preparing to sell your business in the next 12 months offers a valuable opportunity to protect your wealth and ensure that your legacy is preserved for future generations” says STS President of North American Strategies, Andy Harris.
Don’t wait until it’s too late – consult with M&A advisors, tax professionals, and estate planners as soon as possible. STS Capital Partners is an international sell-side advisory firm of expert guides helping entrepreneurial and privately-held businesses achieve Success to Significance™ through Selling to Strategics™, making Extraordinary Exits possible.
