Dire Warning for Capital Gains

The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 extends Bush tax cuts until the end of 2012. As of January 1, 2013 the capital gains rate will increase to 20%.  Unless there’s intervention and a further extension of the “Bush” tax rate cuts, 2013 could bring a significant increase in the rates for single individuals with income in excess of $200,000 ($250,000 for married filing jointly). Although Congress might take action to minimize the tax increase, business owners at these income levels should start planning for proposed changes urgently.

Despite all these dire warnings to business owners of privately held businesses contemplating the sale of their business, very few have taken heed of the impact to their future net worth and dramatic effect on the proceeds of a business sale in 2013. To mitigate the effect of the potential capital gains tax increases business owner need to significantly grow their sales just to maintain equity. However, if a business owner is emotionally and financially ready to sell, then now is the time to start talking with advisors on how to maximize the business value before a potential capital gains tax increase.

There are a multitude of tax avoidance tactics which can be applied, however time is running out and the sooner a small business owner starts the process the better. To sort out this maze of taxes and how applicable they are to you, retaining a very competent tax attorney or CPA is the first task. In fact, this may not be a bad time to review your exit or transition plan, if you have one, if not, this is something that should be at the top of your agenda. There is no doubt, that selling a business requires expert tax advice, so the earlier you start the better.


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