services: Valuation

Business owners might assume that when it comes to company valuations, higher is always better. After all, a valuation represents the value of your company in the marketplace. But unless you are planning to sell your business soon, lower valuations can actually provide significant potential tax benefits, particularly when it comes to gifts and estate transfers. In fact, with lower valuations currently prevailing given the risk of COVID19, now may be an opportune time to transfer/gift interests in your business to children, grandchildren or trusts.

COVID-19 Recession Driving Lower Valuations

Across the board, many U.S. companies’ values are down, as they deal with the impacts of COVID-19 and related shelter-in-place policies. Revenues and earnings are impacted in most industries. The real estate market is softening and many segments of the economy are potentially impaired. Uncertainty, above all, reigns. These factors likely add up to lower valuations for those companies affected by them.

Lower Valuations + Current High Lifetime Exemption = Maximum Tax Savings

Business owners who already have plans for their estates in place will be familiar with the current estate tax maximum lifetime exemption of $11.26 million (that is, $10 million in 2011 adjusted for inflation). All gifts below this amount are currently exempted from the federal gift tax, with accompanying rates between 18% and 40%.

However, these owners should be aware that the current lifetime exemption is scheduled to expire in 2026, after which it will be cut in half. As a result, between potential lower valuations of your business right now and the impending expiration of today’s more favorable gift tax exemption amounts, now may be a uniquely beneficial time to accelerate (or begin) the process of estate transfer. With proper planning, post-transfer growth of assets potentially can escape estate, gift and generation-skipping transfer taxes altogether.

For swift, expert valuations of your business, turn to BPM.

Qualified valuations are one key element to taking advantage of these potential tax advantages when gifting closely held business or partnership interests. The IRS imposes strict requirements on appraisals for gift or estate tax purposes. However, even if you have already conducted a valuation of your business for estate and transfer tax purposes this year, you may still conduct a new post-COVID19 valuation, the results of which may enable you to accelerate your gifting strategy at potentially lower valuations.

To that end, BPM’s Valuations and Appraisals team is fully equipped to provide taxpayers with independent and objective valuations of closely-held business interests and other assets to enable your gift or estate transfer goals. Not only do BPM's comprehensive valuation services meet all of the relevant IRS requirements, but our accredited business valuation experts provide market insight and an advisory approach focused on being a resource for client needs. BPM’s collaborative approach enables specialized technical services and the ability to execute a comprehensive gameplan.

For more about how BPM’s Valuations and Appraisals team can help you maximize your estate transfer tax, contact Kemp Moyer or Mike Ruane.

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