Proposed New Administration Taxes & What it Means for Your Business

Change in Top Income Tax Bracket

The plan would increase the top income tax bracket for those earning more than $400k from 37% to the 39.6%. Meaning less take home for you and whoever wants to buy your company.

Change in Tax Rate on Long Term Capital Gains

Under current law, long term capital gains are taxed at a maximum rate of 20%. The proposed tax plan would increase that to 39.6%, meaning if passed, you would pay double the taxes on your business sale.

Elimination of Asset Value At Death

Currently, when a decedent passes away, estate assets typically receive a step-up to fair market value when inherited. If the beneficiary sells the asset, they can do so with little to no capital gains tax. Under the proposed plan, your heirs would pay taxes on the market value of your company upon your death or pay significant taxes when they sell the business down the road. This could force a fire sale of your business by your spouse or children.

Reduction in Lifetime Estate & Gift Tax Exemption

Currently, the value of assets that can be passed free of estate and gift taxes is $11.58 million for individuals and $23.16 million for couples. The proposed tax plan calls for a reduction to $3.5 million. This would significantly limit your ability to pass your company to your children without financial penalties.

Increase in Top Estate & Gift Tax Rate

The proposed tax plan calls for an increase in the maximum estate and gift tax rate from 40% to the 45% rate in effect in 2009. It would cost you more to pass your business to your family through your estate.

Elimination of 20% Deduction for Pass-Through Business Owners

Under the proposed tax plan – if you run an S Corp, an LLC or a Partnership, you will pay nearly 20% more in taxes than your C Corp competitors.

If you’d like to discuss these taxes or how to maximize the valuation of your company’s sale, contact me at 512-531-6114 or email CHarvey@IBECtx.com .

We are dealmakers, not tax experts. Please consult your tax consultant to fully understand the implications of these changes for your situation.