A looming increase in the capital-gains tax rate next year is fueling sales of some privately-held businesses.
So little time, yet so much to do! That seems to be the theme as we near the end of 2012. Hopefully Congress will get to work and hammer out a deal to avoid the “fiscal cliff” (and trigger another recession).
Regardless, it certainly looks like 2013 still won’t be quite as advantageous as the current tax code. This especially is the case if you’re looking to make a major sale that will invoke capital gains taxation. Accordingly, you’d better get to work and get that sale completed before the ball drops in Times Square!
For business owners considering the sale of their businesses, this advice includes you. In fact, you will be interested in a recent article in The Wall Street Journal titled “Looming Tax Hike Motivates Owners to Sell.”
As you likely know, the first tsunami to hit will be the automatic relapse in the tax code to pre-Bush era days, with an effective increase in capital gains taxation from a current 15% to a less advantageous 20%. And it gets worse: the Affordable Care Act (Obamacare) tacks on an extra 3.8% to capital gains that also goes into effect next year. Bottom line: capital gains will increase to 23.8% (that’s an increase of almost 60%!).
It’s yet to be seen what the lame-duck Congress will do with their time or how they’ll solve this problem. But it seems unlikely that Obamacare and that extra 3.8 % surcharge is going anywhere. That alone is enough to encourage some business owners to advance their sale dates to 2012.
It might already be too late to sell your business. Nevertheless, there may be time yet or other transfers besides. Looking for an example? Well it’s worth noting that George Lucas didn’t wait until January to sell his company, Lucasfilm, to Disney, potentially shaving $176 million off his would-be tax bill.
References: The Wall Street Journal (November 1, 2012) “Looming Tax Hike Motivates Owners to Sell”
The Trust Advisor (November 4, 2012) “Disney Deal Gives George Lucas a Billion-Dollar Tax Break”