Thinking about passing your business on to your family? Considering selling in the near future? You may want to consider bumping up those plans sooner, as there are clear signs it might make sense to sell this year.
It’s been widely reported in the past few months that Biden’s White House plans to raise taxes on those individuals who make more than $1 million per year. As a part of his American Families Plan, the administration has proposed to nearly double the capital gains tax rate, increasing the incorporated businesses tax to 28% from 21%, as well as remove the tax benefit (or “step-up in basis”) for appreciated assets such as real estate and businesses. The combination of these would effectively create the historically high tax rates for business owners and high net individuals alike. An owner who has been considering passing their business on to family members or even selling in the next few years could have a potentially large tax rate looming, possibly more than 61%, according to an analysis from the Tax Foundation. That would be the highest taxes have been in almost a century.
The Tax Plan has growing support, and Americans from both sides of the aisle favor the idea of taxing wealthy individuals and corporations over a personal tax hike. A Fox News poll in April 2021 showed 56% of respondents favored increasing the tax rate on businesses and corporations as a way to pay for the White House’s infrastructure plans and national debt. A similar poll by the Washington Post showed 58% supported the tax hike.
What does that mean for you? With uncertainty of how these proposals will actually make it through Congress, maybe it’s time you consider what your 4 or 5-year plans for your business looks like under the filter of looming taxes. If you are a business owner who has thought about exiting your business in the next few years, you may want to think about ramping up your plans sooner.
Riley LeBrun is a founding partner of Epic and has 20 years of experience developing and selling real estate and businesses.