business owners—mostly founders who could gain a lot from a sale—are looking to
close deals before next year, when the maximum tax on investment income is
scheduled to rise from 15% currently to at least 23.8% on most capital gains,
at least for higher-income households. Many sellers intend to convert their
equity into retirement funds or just start anew.
There’s only so much time left
in 2012, and yet so much to do. 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
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.
Contact your Newport Beach
estate planning attorneys at Meier Law Firm to discuss all of your estate
References: The Wall Street
Journal (November 1, 2012) “Looming Tax Hike Motivates Owners to Sell”
Trust Advisor (November 4, 2012) “Disney Deal Gives George Lucas a
Billion-Dollar Tax Break”