Impact of Potential Tax Changes on Business Valuations for Gifting and Estate Planning
By Meghan Kelly, CPA, CFE, CVA, FAZ Forensics –
June 18, 2025
The beginning of President Trump’s second term has been marked by unpredictability and swift changes, making it difficult to anticipate the decisions that he and the Republican-led government will make. Nevertheless, key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire on Dec. 31, 2025, and Republican policymakers have expressed interest in extending and expanding certain provisions.
The nonpartisan Committee for a Responsible Federal Budget (CRFB) found that extending the TCJA provisions could cost between $3.9 trillion and $4.8 trillion over the next ten years. These figures may make it difficult to extend some of the expiring provisions of the TCJA in conjunction with the budget proposal, which could present significant implications for both businesses and individuals. President Trump has advocated for extending the expiring provisions, but some of the fiscal conservatives in the House and Senate have raised concerns that extending the TCJA tax cuts would increase the deficit and have too much of a negative impact on the country s debt levels over the next 10 years. At the time this article was published in May 2025, the TCJA provisions had yet to be extended.
What is Expiring?
There are numerous provisions that affect both individuals and corporations. For individuals, the expiring provisions will result in higher income tax rates, a reduction in the standard deduction, a reduction in the Child Tax Credit, the elimination of the $10,000 cap on the state and local tax deduction, and a reduction in the lifetime estate and gift tax exemption. For 2025, the estate and gift tax exemption will be $13.99 million per individual but will revert to pre-TCJA levels at the end of 2025; the projected 2026 estate tax exemption is estimated to be approximately $7 million per individual, essentially halving the current exemption.
What Does This Mean for Business Valuations?
Business owners and high-net worth individuals utilize estate and gift planning to transfer wealth to future generations; in many instances this process requires a business valuation. It is important to understand that if the estate and gift tax exemption decreases to approximately $7 million per individual, more estates will be subject to federal estate taxes.
Although the IRS recently laid off thousands of employees, IRS scrutiny of business valuations is anticipated to increase as a result of the potential expiration of the exemption to ensure that interests are not undervalued. The IRS will likely place increased emphasis and review on the usage and appropriateness of discounts for lack of control and lack of marketability, as a lower exemption may result in a more aggressive application of discounts to fall within the reduced exemption range. Valuation experts will need to ensure that the rationale behind the applied discounts for business valuations of closely held businesses are reasonable and justifiable in the face of anticipated advanced scrutiny from the IRS. Overall, taxpayers should expect more challenges from the IRS to prevent tax avoidance if the provision is not extended.
Due to the potential expiration of the TCJA lifetime estate and gift tax exemption, some trends during the increased exemption period included the following:
- Gifting while the estate and gift tax exemption is still at the higher individual rate: The IRS has confirmed that individuals who take advantage of the increased gift tax exclusion amount in effect from 2018 through 2025 will not be negatively affected after 2025 when the exclusion is set to be reduced to pre-2018 levels.
- Altering the ownership structure of closely held businesses by transferring minority interests to a family limited partnership or limited liability company
- Transfer of interests to trusts like grantor retained annuity trusts or intentionally defective grantor trusts
The potential expiration of the TCJA estate and gift tax exemption could present significant challenges to the owners of closely held businesses. At this point, it is difficult to predict whether all of the TCJA provisions will be extended, as although President Trump has made it clear he is in support of extending many of the provisions, some budget-conscious Republican lawmakers are concerned about the overall cost posed by extending the provisions. House Speaker Mike Johnson has indicated that extending many of the expiring TCJA provisions was a priority of the current administration. It is important to be informed, monitor legislative developments and consult with valuation experts to determine the fair market value of gifted interests in closely held businesses.
 | Megan T. KellyMegan T. Kelly, CPA, CFE, CVA, is a director at FAZ Forensics. She is a member of the NJCPA Content Advisory Board. More content by Megan T. Kelly: Learn more from Megan T. Kelly: |
This article appeared in the Summer 2025 issue of New Jersey CPA magazine. Read the full issue.