Share This Info:  

Capital Gains Tax Increase - How It May Affect Exit Strategies


Most owners of privately owned businesses realize that the value of their business is strongly influenced by the earning power (profitability) of the business.  With the economic conditions that have prevailed for the last many months, the market value of most privately-owned businesses are lower today than perhaps they were a year and a half to two years ago.  Many owners can hardly wait for the day that earnings and values recover so that they can implement their desired exit strategies … and thus, many owners are looking to 2010 and perhaps 2011 for that right time.

If you are in an exit planning mode, don’t forget that in addition to the market value of your business, it is essential that you concentrate on net after tax dollars and not just be focused on achieving a high sales price.  As you may be aware, under the current Federal Tax code, how your transaction is structured for tax purposes can give you net after tax dollars of anywhere from about 85% of your sales price down to less than 50% of your sales price.  Let’s quickly do the math: if you sell your business for $2 million, your Federal taxes can range anywhere from about $300,000 to over $1,000,000!  In addition, subject to where you live, you might also have to pay State taxes.  As an example, in California you would pay another 9.3% (or another $186,000) in taxes on a $2 million sales transaction!

FEDERAL CAPITAL GAINS TAX RATES SCHEDULED TO INCREASE BY 33%

On January 1, 2011 the ‘Bush Tax Cuts’ are set to expire unless renewed by Congress. This means the Federal Capital Gains Rate will increase from 15% to 20%. So if our hypothetical $2 million transaction closes after December 31, 2010, then there will be a minimum of an additional $100,000 in Federal taxes to be paid. It would be prudent to assume that states with capital gains taxes like California will use the Federal increase as an excuse to increase state capital gains taxes, further reducing the net after tax dollars to the seller.

CONCLUSION:   While the value of your business might be greater in 2011 or thereafter, your net after tax dollars might still be greater if the transaction takes place before the end of 2010.  Prudent business owners should understand the potential impact future changes to the capital gains rate may have on their after tax dollars so they can make informed decisions on the timing of their business transition.

About The Author:  Steve Fitzgerald is a business broker in the San Diego area assisting business buyers and sellers throughout Southern California. You can reach Steve by phone at 858-320-0474.

Categories: BizBen Blog Contributor, Deal And Escrow Issues







  Helpful Resources To Assist In Selling And Buying California Businesses
Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.

Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Peter Siegel, MBA, BizBen Founder, ProBuy, ProSell Programs

Founder & President Of BizBen.com (since 1994) & BizBenNetwork.com. I am the Lead Facilitator for the ProSell & ProBuy Programs on both websites. I consult daily with buyers, sellers, and intermediaries daily about buying and selling businesses. Call 925-785-3118.

Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Ryan Clark, Business Broker: Southern California

The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan, Business Broker at 310-652-8353.

Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence

I have 32 years experience in the laundry industry, specializing in assisting laundry buyers with buying or starting up, building, re-tooling, laundries throughout CA. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations. Contact me at 619-227-5711 Cell.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Buying A Business With Partners Or Family Members: Pros And Cons

Buying a business with a partner/partners, family members can make one think twice about ever doing it twice! However in this BizBen Discussion Post Joe Ranieri (Orange County Business Broker at 714-292-5448) chats about identifying roles, defining goals, attorney visits, and other relating issues.

Mentoring In How To Buy A Business - Tips From Expert Willard Michlin, CPA

Willard Michlin, CPA a due diligence specialist shares his views on the mentoring process & about how buyers can "profit" from such a relationship when searching and buying a business. Mr. Michlin, CPA (800-864-0420) performs due-diligence services and and consulting services for business buyers.

What Steps Do I Take When Closing A Business That Doesn't Sell And I Close?

Every business broker knows that a listing taken is not a listing sold, in fact the ratio of listed vs. sold could be discouraging if you really thought about it. Joe Ranieri (Orange County Business Broker) discusses what you should do if you finally have to close the doors and call it quits.

Attorney Specialist Shares Escrow Instruction Tips When Buying A Business

Once you have successfully negotiated the Asset Purchase Agreement ("APA") for your acquisition it's natural to relax a little and let your guard down. Attorney Specialist Mark Chatow discusses what business buyers should look out for when opening escrow and getting escrow instruction in place.

Can A Business Seller Back Out Of Escrow If They Simply Change Their Mind?

Can a seller of a small business back out of an ongoing escrow? Probably, yes, it all depends how far along the escrow is, which will dictate how messy things will get for both owner & buyer. Joe Ranieri (Southern California Business Broker) gives his feedback with others on this BizBen Discussion.

Bob Hughes Discusses: Due Diligence Considerations Before Buying A Business

Coachella Valley business broker Bob Hughes (760-323-8311), discusses the need for due-diligence and items that should be collected & investigated by the buyer during this critical process of buying a small business. Read his latest blog post on due diligence considerations before buying a business!

Podcast/Vlog: Business Purchase Financing Chat: SBA Loan, Non SBA Financing

Ever wonder what is involved in obtaining business purchase financing to buy a business or franchise? Peter Siegel, MBA who has over 20 years advising and obtaining all types of financing for business buyers in this video/podcast - SBA loans, Non-SBA Financing, Alternative Financing Sources.

Due Diligence Issues: What Business Buyers Should Know About The Process

Willard Michlin, CPA, CFE at 800-864-0420 elaborates why you can do a large portion of the due diligence yourself, depending on your background, but you should never try to do it solely on your own. In this BizBen blog post he explores ways business business buyers get themselves into trouble.


Willard Michlin Due Diligence Services
Escrow Services From Helen Yoo New Century Escrow
Escrow Town And Country Southern California
BizBen Index Sales Stats
Facebook
Twitter
Linkedin
Vlogs and Podcasts
New Postings Reports On BizBen Sign Up
Business For Sale California Stats
Advertise On BizBen
BizBen ProBuy Program
Instant Email Alerts On BizBen

BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2019, All Rights Reserved



Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
What Steps Do I Take When Closing A Business That Doesn't Sell And I Clo...
Read More News
Buying A Business With Partners Or Family Members: Pros And Cons
Read More News