| p>Business owners and management teams that | | | | time table for a business sale. For those owners |
| are contemplating a sale of their company are | | | | or management teams that do not plan to sell for |
| now evaluating the impact that the 'timing of sale' | | | | 5-10 years this event should not become an |
| has on the net proceeds received, as a result of | | | | inducement to rush out and sell the company. For |
| the upcoming 33% capital gains tax increase. | | | | those owners that are considering a sale over the |
| Many business owners have seen a decline in | | | | next few years, the impact that this tax increase |
| revenue and profit over the last several years | | | | has on the after tax dollars received in a sale |
| and are expecting an improvement in the future. | | | | could be very significant and therefore, a |
| Since most business valuations are derived, largely | | | | thorough evaluation should be performed by the |
| in part, by the earnings the company generates, | | | | owner to assess the actual effect between selling |
| the general consensus is that a higher value will be | | | | a business now or years in the future. By |
| obtained by delaying the sale. Achieving the | | | | analyzing the net after tax proceeds from a |
| highest business valuation is often the sole | | | | business sale in years 2010 thru 2013, the |
| concern with little consideration to the net after | | | | business owner or management team will |
| tax dollars. Many business owners are now | | | | recognize that even with a 10-15% growth per |
| re-evaluating this thought process given the | | | | year, and maintaining consistent earnings with a |
| significant capital gains tax increase that will take | | | | constant exit multiple, the incremental value |
| place on January 1, 2011. | | | | attributed by the growth in income and revenue, |
| The Jobs and Growth Tax Relief Reconciliation | | | | in most cases, would be completely negated by |
| Act of 2003 was signed into law on May 28, | | | | the increase in capital gains taxes. Therefore, |
| 2003. Among other things, this 2003 tax law | | | | while the value of the business is anticipated to be |
| created lower dividend and capital gains rates for | | | | higher in years 2011 and beyond, the net after |
| all investors. Under this Act, the maximum net | | | | tax proceeds, could be considerably less. |
| capital gains tax for assets held for more than | | | | There are many considerations involved in the |
| one year was lowered from 20% to 15% (and | | | | sale of a privately held business and this article is |
| from 10% to 5% for taxpayers in the 10% or | | | | written with the intention of helping business |
| 15% tax bracket). The Tax Increase Prevention | | | | owners understand the potential impact that the |
| and Reconciliation Act of 2005, which extended | | | | 2011 capital gains increase will have on the sale of |
| the 15% capital gains tax rate, "sunsets" on | | | | their privately held business. Understanding the |
| January 1, 2011. The term sunset is a time | | | | effect of the impending capital gains tax increase |
| phase-in provision which means that without | | | | enables business owners to make informed |
| further Congressional action, the previous law, | | | | decisions as it relates to maximizing the net after |
| including the provisions of the Economic Growth | | | | tax dollars through the intelligent structuring and |
| and Tax Relief Reconciliation Act of 2001 | | | | timing of the business sale transaction. The tax |
| (EGTRRA), will go back into effect. Therefore, the | | | | implications will vary for every business based |
| top 15% capital gains rate will revert to its former | | | | upon the type of assets being sold and the |
| pre-May 6, 2003 level of 20%, effectively a 33% | | | | structure of the transaction and it is strongly |
| increase. | | | | recommended that a business tax advisor be |
| This tax increase should be one of many factors | | | | involved in the process. |
| that are considered when evaluating the optimal | | | | |