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When is the Best Time to Sell Your Business From a Tax Standpoint?

According to Monty W. Walker, CPA, CBI, BCB, now may be the best time to sell your business.
When is the Best Time to Sell Your Business From a Tax Standpoint?

According to Monty W. Walker, CPA, CBI, BCB, now may be the best time to sell your business.

You may be aware that the top capital gain tax rate for most business sellers has been 15% for people in the 25% or higher tax bracket. The current capital gain rates are scheduled to expire on December 31, 2010. Beginning in 2011, the top 15% rate will revert to its former level of 20%.

The question many prospective business sellers are asking now is this; Will the top rate only rise to 20% or will congress raise it even higher? When is the best time to exit your business from a tax standpoint?

Over the last 35 years long-term capital gains tax has declined from 35% to its present level of 15%. With unprecedented deficits and the present inclination of government to tax "the wealthy," it seems reasonable that the present administration will look for ways to tax business transactions. If you consider the huge financial impact resulting from the War on Terrorism and the massive increase in congressional spending, it is very likely that the issue of raising capital gain rates even higher will be introduced by some member of Congress.

Most business sales include a blend of capital gain and ordinary income, according to Walker. "Considering the known capital gain rate increase, then add the potential for additional capital gain increases,….., and the fact that the top federal tax rate returns to 39.6% in Year 2011, a clear answer certainly emerges regarding when to sell."

Walker states "If an entrepreneur wants to experience the lowest tax impact possible from selling his / her business, selling before the tax rates increase is the way to go."

"Based on current regulations, 2011 capital gain tax rates will be at least 20% with an additional health care surtax likely causing some people to exceed a 25% aggregate rate. If congress decides to implement further increases, anyone who waited until 2011 to sell a business will wish they could go back in time to 2010."

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