Family Business Survival Strategies in an Era of Sweeping Tax Reform
The family business, in the best of times, faces unique challenges, particularly with business succession and estate planning. Moreover, the family business is often not merely a business, but a lifestyle. The hard work, long hours and heightened risk can be common challenges. The business owner’s very identity is more likely to be tied to the success, or failure, of the family business.
This is particularly evident for agricultural or farm businesses. The family farm is connected to the land, which is critical to success. In California, where our firm is based, the news is replete with stories of fires and critical water shortages as our mega drought continues.
In addition to such forces of nature, family farms and other family businesses face another threat: An increasingly inhospitable tax environment. First, let’s examine some of the changes in the wind. We must all remember that these are all simply proposals, and any final tax changes may be dramatically different. We remain uncertain that the Biden administration has enough votes to enact any truly meaningful tax change. Predictions are always tricky — consider how accurate the pollsters were in the 2016 and 2020 presidential elections.
That said, this examination is timely as the House Ways and Means Committee (House W&M Committee) released its proposed tax changes on Sept. 13. Note that most provisions would be effective Jan. 1, 2022. However, caution is needed as some provisions would have an earlier effective date. We’ll explore the changes that are particularly meaningful for the family business further, but some highlights of the House proposal include:
- Increasing top individual rate to 39.6% and the top capital gain rate to 25%
- A new 3% surtax for individuals with adjusted gross incomes (AIG) over $5 million
- Lower estate and gift tax exemption beginning Jan. 1, 2022
- Changes in the treatment of Grantor Trusts
The House W&M Committee’s proposal ( for the text of the committee’s report) is just one of many we’ve seen recently. In addition to this most recent proposal, there’s President Biden’s ; the (the STEP Act), introduced by.
