New political administrations always create a degree of uncertainty, and the Biden administration’s signature economic package is no exception. Proposed tax changes are generating anxiety among many business owners and also signaling it may be time to sell their business – especially if retirement is just around the corner. (Note that negotiations are underway between the White House and Congress at the time of publication of this blog, so the provisions and particulars may change.)
What are some of the proposed tax changes and other legislation that could impact your decision to sell?
Capital gains will likely increase
The Made in America Tax Plan may increase corporate tax rates to as much as 28 percent, undoing the significant corporate tax cuts made by the preceding administration in 2017. Should an increase occur, the proceeds from the sale of a business - capital gains - would be taxed at a higher rate, making selling prior to the adoption of new legislation very attractive.
Inheritance tax advantages may be eliminated
Under the Plan, the government is also expected to eliminate inheritance tax advantages for the wealthiest American families. This should be a key concern for those planning to leave their business to a family member.
Cost of employee wages and benefits might increase
Small-business owners are also concerned about other legislation on Capitol Hill. The White House supports a $15 federal minimum wage as well as increased sick and family leave benefits. Provisions such as these could lead to dramatic increases in labor costs.
How might the proposed tax changes impact your business transition strategy?
Business owners wanting to take advantage of the current tax structure and market conditions may want to consider an ownership transition. Often, these transitions are planned months or years in advance.
However, due to the proposed tax changes and other potential legislative changes, now may be an opportune time to either sell outright or take advantage of a partner buy-in agreement where a current employee or employees replace the business owner to take ownership of the business.
With selling multiples at record high levels and the proposed tax changes in sight, it might be the best time to sell your business.
If you are considering these financial options but don’t know exactly where to begin, please feel free to contact us as we have experts in lending who have helped hundreds of clients make their business transition a reality.
Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.