The opportunity to sell a business that you have built can be a lifechanging event. There are a number of planning ideas that should be considered before there is a binding contract in place. If you business is a candidate for the Section 1202 small business stock exclusion, you should be made aware of that option early in the process. If your business doesn’t qualify or you were not aware of this option, there are many other options such as (i) an ESOP, (ii) a charitable remainder trust, (iii) a charitable lead trust, or a (iv) restricted sale trust. Each of these options has benefits and risks. Please contact someone that is knows this area before you sign that contact.
Now is the time to do asset protection and estate planning. The exemptions will sunset on 01/01/2026. The exemption is currently about $13M, but will fall to an inflation adjusted $5M on 01/01/2026 if the exemptions are allowed to fall. If we have divided government, then it is likely that the exemptions will sunset. We have a nice runway to do the planning. You should take advantage of that runway. I know planning for death, taxes and potential lawsuits is not something most people want to do, but it is planning that should be done!
SUMMARY: THE INFLATION REDUCTION ACT OF 2022
The Inflation Reduction Act of 2022 will make a historic down payment on deficit reduction to
fight inflation, invest in domestic energy production and manufacturing, and reduce carbon
emissions by roughly 40 percent by 2030. The bill will also finally allow Medicare to negotiate
for prescription drug prices and extend the expanded Affordable Care Act program for three
years, through 2025.
The new proposal for the FY2022 Budget Reconciliation bill will invest approximately $300
billion in Deficit Reduction and $369 billion in Energy Security and Climate Change programs
over the next ten years.
Additionally, the agreement calls for comprehensive Permitting reform legislation to be passed
before the end of the fiscal year. Permitting reform is essential to unlocking domestic energy and
transmission projects, which will lower costs for consumers and help us meet our long-term
TOTAL REVENUE RAISED $739 billion
15% Corporate Minimum Tax 313 billion*
Prescription Drug Pricing Reform 288 billion**
IRS Tax Enforcement 124 billion**
Carried Interest Loophole 14 billion*
TOTAL INVESTMENTS $433 billion
Energy Security and Climate Change 369 billion***
Affordable Care Act Extension 64 billion**
TOTAL DEFICIT REDUCTION $300+ billion
* = Joint Committee on Taxation estimate
** = Congressional Budget Office estimate
The Inflation Reduction Act:
• Enacts historic deficit reduction to fight inflation
• Lowers energy costs, increases cleaner production, and reduces carbon emissions by
roughly 40 percent by 2030
• Allows Medicare to negotiate drug prices and caps out-of-pocket costs to $2,000
• Lowers ACA health care premiums for millions of Americans
• Make biggest corporations and ultra-wealthy pay their fair share
• There are no new taxes on families making $400,000 or less and no new taxes on small
businesses – we are closing tax loopholes and enforcing the tax code.
1202 is a little know or understood provision of the Internal Revenue Code that excludes the greater of (1) $10M or (2) ten times basis in original issue stock. To qualify for 1202, the company must be a C corporation and have aggregate assets of $50M or less at stock issuance. The investor must acquire shares in the original stock issuance. The company must be engaged in an active trade or business. The stock (QSBS) must be held for at least five years.
In addition, if you want to sell your QSBS before five years, 1045 allows you to rollover your QSBS into replacement QSBS.
There are a lot of complexities not mentioned in this post. Contact me to learn more.
While each situation is different, I think in most cases, the decedent should keep his family informed of his or her estate plan. If the decedent wants to treat his children or others differently, the decedent should communicate with that family member why. It may be because a family member has special needs or it may be because that family member has exhibited behavior that demands action. For example, if the family member has committed a crime or shown a tendency to bad behavior, it is reasonable to exclude or reduce that family members inheritance.
Notifying that family member should help avoid a will contest, or, if not, significantly improve the estate’s chances of a successful result in arbitration or litigation. Of course, the family member may file suit anyway, and the estate may end up settling the matter to avoid the costs of litigation. Nevertheless, in most cases, it is better to notify the family member in writing since the estate will then be in a much stronger position if a law suit is filed.
About Grady Dickens
I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.