Archive: Business & Technology

My partner Michael receives a weekly newsletter pertinent to the mergers & acquisitions field.  This week he brought to my attention an article I’d like to share with any business owners contemplating the timing of their retirement, and transition of business ownership.

This article is entitled “Lawyer’s Corner: Selling Your Business in 2010 When Federal Tax Rates Are Low,” by Phil W. Jaeger, Partner, Bean, Kinney & Korman, P.C.  I’m sharing this because it clearly explains one of the reasons we’ve been advising business owners that waiting for a better selling environment may be one of their greatest strategic mistakes.

While some business owners are holding off, hoping the market will recover to ensure returns closer to their earnings than are available in today’s market, other conditions are currently converging to create a negative impact on the amount of equity available in selling the business.  The entire picture is too complicated to discuss in one article, but I will touch on the federal tax rate, as it is discussed by Jaeger.

He states, “We are writing to alert business owners about current long-term capital gains tax rates and the higher rates that are likely to be enacted by Congress for January 1, 2011 and beyond. Under the current Federal income tax law, the top 15% capital gains rate is scheduled to expire on December 31, 2010 and revert to its former pre-May 6, 2003 level of 20%. “

Historically, the top Federal tax rate on long-term capital gains has ranged from a high of 35% in 1976 to 15% in 2003.  Given the current federal budget deficits, it is likely Congress will revert capital gains taxes to a higher former rate.  How will this pending change impact your bottom line if you sell your business after January 2011?

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