If you have been considering selling your business, or any other asset that will generate a handsome long-term capital gain, Consider this – compliments of Janas Associates, an investment banking partner of ours:
“The Biden Administration has indicated a plan to increase taxes. For Long-Term Capital Gains (“LTCG”), the proposal is to increase the rate from 20% to 39.6%. New rates are unlikely to apply through the end of 2021 and possibly into the first quarter of 2022. Income tax laws are generally not retroactive. Under current tax law, the federal tax for each $10.0 million of LTCG on sale of your business will be $2,000,000. Under the proposed new rate, the federal LTCG tax would be $3,960,000, reducing the net cash to owners at transaction closing of $1,960,000 per $10.0 million of LTCG.”
That’s a pretty big chunk of any gain you might achieve on the sale. Regardless of what you might think of the tax policies of former President Trump or President Biden, it would be wise to avoid a hit of that size if possible. While it’s not a certainty that the proposed rate increase will pass as proposed, you might be wise to avoid the risk if you’re in a position to take your profit this year. If you’re ready to sell and you need to understand the process and ensure you have a solid team of advisors, think about this:
Virtually any sale of a a business takes the better part of a year from decision to close, and that’s if everything is in great shape. If not – and for most privately owned companies the answer is usually “not” – the timeframe could already be too short. If your balance sheet needs a cleanup, if your path to a sale is unclear, if you don’t know what should be fixed and what won’t much matter, I suggest you call us today. Or you could take your chances. It could all work out just fine. Or not. We are Your CFO for Rent.