Business sellers need to retain the services of a knowledgeable tax professional to help them figure out the IRS issues and problems they may be facing.
It is not the sales price that is important; rather, it is how much money does the seller actually get to keep that is.
- assist the seller, and their team of experts, to determine the IRS and California taxes that will be payable upon a sale.
- assist with analyzing if there are any possible deferral mechanism that might be available. Sometimes, deferral is a great idea and in other situations it might not be a terribly costly error.
- Each potential seller is different. Each family owned business is unique with respect to planning options and asset protection strategies with respect to family assets.
Whenever the term “that is a deal killer” is heard in a potential business sale and/or a real estate transaction (it could be a low appraisal problem, inspection report issues, lender unreasonableness, price and/or terms issues), someone should be suggesting that the parties retain the services of a knowledgeable real estate mediator. Often a solution can be found involving the financing, the comps being used by the parties, the future of one or more of the parties and other points.
As a result of the recent Obamacare decision by the U.S. Supreme Court, there are several new taxes that need to be considered. Effective 1/1/2013, there is a new 3.8% tax on investment types of income for successful taxpayers. Further, the so-called Bush Tax Cuts are set to expire on 12/31/2012. If that happens as planned, then the capital gains tax rates may go up to 20%. If nothing changes, that means that a seller today might pay an IRS capital gains tax rate of only15%. A sale that occurs next year might see a rate of 23.8%, or higher. Assuming a $2,000,000 gain that is a difference of about $175,000, or so, to the IRS.
There is a great deal of speculation about what is going to happen with the Bush Tax Cuts. Many in Congress are in favor of lowering income tax rates. That is the good news, the bad news is that in order to get the lower rates they will need to totally eliminate, or sharply limit, the current deductions. What would happen to the value of your business if there were massive changes to the current IRS Code? Truthfully, it is impossible to know. However, there is still time within which to do planning based upon the rules that we do know.
The other part of the tax puzzle relates to California income taxes. California does not have a lower capital gains tax rate. All income is taxable as ordinary income. Currently, the maximum rate for couples is 9.3% at $96,058. For incomes over $1,000,000 there is an additional 1%. If Governor Brown gets his way in the November elections there will be more income taxes for successful people to pay. For couples with income over $500,000 there will be an additional 1%, for couples over $600,000 there will be another 2% and for couples with incomes over $1,000,000 there will be another 3%. Again, next year a potential gain of $2,000,000 could produce added taxes of $30,000 to $40,000 payable to Governor Brown.
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