The Tax Cuts and Jobs Act: Procrastination Can Cost Sellers…

The Tax Cuts and Jobs Act (TCJA) has opened remarkable opportunities for those considering asset transfers or outright business sales. For independent agents and brokers, 2025 presents a pivotal moment to act, especially if transferring assets into a trust is on the horizon.

Brian Refici underscores a critical point: Donald Trump’s reelection and the Republican-led Congress may have calmed concerns about the TCJA’s provisions expiring. However, the potential expiration of key tax advantages, such as the Qualified Business Income (QBI) deduction and the enhanced Estate and Gift Tax exclusion, should prompt proactive planning.

Understanding the Current Landscape

Two significant provisions of the TCJA—the QBI deduction and the Estate and Gift Tax exclusion—have provided independent business owners with tangible benefits since their introduction. While there is optimism that these provisions might extend beyond 2025, prudent business owners and brokers must prepare for the possibility of a reversion to pre-2018 conditions.

Let’s dissect the current scenario:

1. Time Sensitivity: Both exemptions are guaranteed to remain in place until the end of 2025.
2. Proactive Planning: Delaying planning could mean losing out on the favorable conditions that exist now.

If you’re envisioning a business perpetuation or asset transfer in the near future, there’s no better time to begin. Let’s explore the advantages and implications of acting within this window.

TCJA’s Benefits for Asset Transfers and Sales

Estate and Gift Tax Exclusion:
The TCJA doubled the federal lifetime exemption for estate and gift taxes. In 2017, this exemption was $5.49 million per individual. By 2018, it had jumped to $11.18 million, with annual inflation adjustments increasing it further. For 2024, the exclusion reached $13.61 million per individual and $27.22 million for married couples.

However, without Congressional action, these exemptions will “sunset” after 2025, reverting to inflation-adjusted pre-2018 levels of approximately $6-7 million per individual by 2026. For high-net-worth individuals, this stark reduction underscores the urgency of leveraging current exemptions.

Take Advantage of Today’s Tax Rates—Now:
If transferring assets to a trust is in your plans, consider accelerating your timeline. Estate tax exemption amounts apply at the time of transfer, making 2025 a strategic year for action. If an exit strategy is on the table for your business post-2025, engaging in estate planning now positions you to capitalize on today’s advantageous environment.

The Economic Context

Legislative risks aren’t the only factors to consider. The robust economy has bolstered firm valuations, creating a favorable landscape for asset transfers and sales. Yet, economic conditions can shift unexpectedly. Acting now allows you to secure benefits while the economic and legislative environments remain favorable.

Additionally, the QBI deduction has been a cornerstone of the TCJA for independent agents and brokers. If your brokerage operates as a pass-through entity, you’ve likely benefited from the 20% income exemption. Should this provision expire, taxable income for many business owners will increase, reducing take-home pay.

Why Intentionality is Essential

The success of business transfers—whether to family, employees, or external partners—hinges on intentionality and thorough planning. While this principle applies universally, the TCJA’s current provisions amplify the urgency. Waiting until 2026 to take action could mean missing out on millions in tax advantages.

The current tax code’s favorable conditions won’t last indefinitely. By acting now, you’ll ensure you’re making the most of these opportunities. Waiting, on the other hand, introduces unnecessary uncertainty.

Practical Steps to Take Now

1. Consult an Estate Planner: Engage with a tax professional or estate planner to assess your options. Understanding how to utilize the current exclusions can significantly impact your financial legacy.
2. Evaluate Firm Valuations: Leverage today’s strong economic conditions to secure maximum value for your business.
3. Plan for Business Continuity: If transitioning your business to family members or employees is part of your vision, begin laying the groundwork now to ensure a smooth process.
4. Explore Trust Options: Trusts can provide significant tax advantages while allowing you to retain some control over transferred assets. This is particularly relevant under the current TCJA provisions.

Bottom Line

The TCJA has reshaped the tax landscape for independent agents and brokers, creating a unique opportunity for asset transfers and business perpetuation. Yet, as 2025 looms, the clock is ticking. While optimism surrounds the potential extension of key provisions, there’s no guarantee. Procrastination in this environment could prove costly.

At DOXA, we believe in empowering insurance professionals to take control of their financial futures. Whether you’re navigating tax strategies or planning a business transition, the time to act is now. Connect with us to explore how our innovative solutions can help you thrive in today’s dynamic environment. Let’s seize the moment together.