Biden Tax Plan May Reduce Business Sale Proceeds

Biden Tax Plan May Reduce Business Sale Proceeds

If you are planning to sell your business in the next three or four years, you may want to consider moving up your timeline. The tax code proposed by President Joe Biden, including the proposed hike in the capital gains rate, could reduce the take-home amount that a founder receives upon the sale of their business. For example, if your technology company sells for $10 million, most of the proceeds would qualify as long-term capital gains. The new tax rates could increase your tax liability by over $1 million if you sell after 2021.

Key Takeaways from Biden Tax Plan proposed for 2022

  • Capital gains (currently 20%) will be treated as ordinary income over $1,000,000 at 39.6%. This effectively doubles the long-term capital gains tax rate, and a majority of private company sale proceeds are taxed as long-term capital gains.
  • 1031 like-kind exchanges may be eliminated or rolled back, making some taxpayers ineligible for capital gains deferral.
  • The top tax bracket for ordinary income could increase from 37.0% to 39.6%.

We realize there are many factors that influence owners who are thinking about selling their business and planning their exit. You should be aware that 2021 will be the last year of the old tax structure and taxes are likely to go up in 2022, so you should talk to a tax or financial advisor soon if you are thinking of making a change.

After you talk to a tax advisor, the next step is to discuss your exit strategy options with the experienced M&A advisors at Austin Dale Group. We can help you evaluate the strategic options and make a plan to optimize your outcome. Most deals take six to nine months to complete, so there is no time to waste.