We recognize that there are a lot of factors that come into play when deciding the timing to exit your business. Each of these factors should be carefully examined by you and your trusted advisors.
One issue to closely consider is the potential impact of proposed tax changes that have been suggested by the incoming administration. Although details are still unclear, chances are good that taxes will be going up in 2022, making 2021 a prime year to implement your exit.
The top tax bracket for ordinary income could increase from 37.0% to 39.6%, the same level as when Joe Biden was Vice President. There is also a proposal to nearly double the capital gains tax rate from 20.0% to 39.6% for income over $1 million.
Now, this may not seem that extreme, especially if you are not making over $1 million. But remember, as we tell attendees at our conferences, the year you sell your business you are likely to earn more than $1M, because you will be taking decades of results and cashing out in one year.
This is something to talk to your wealth advisor about very soon. These two recommendations alone could have a direct and dramatic impact on your financial future and the legacy you want to leave to your heirs, charities, employees, and community.
And again, even though the details are not in concrete yet, it is most likely that taxes will be going up. The good news is that you still have time to act to close a transaction before 12.31.2021 (assuming any new taxes will take effect in tax year 2022).
However, you will have to move quickly. Under the best-case scenario, you are looking at nine months minimum to close a transaction with a buyer. So, if you have been planning on exiting after 2021, it really behooves you to do some research with your wealth manager and/or tax advisor and decide how quickly you need to get started.
As mentioned, we know that the decision to exit and its timing is predicated on a number of factors in your life. But if you are not aware of these financial implications, you need professional advice on how to proceed to close an optimal deal.
A great place to learn more about the potential tax implications on your exit is at a Generational Equity Growth and Exit conference. While there you will learn a significant amount about post-2022 financial implications and will be able to meet with our M&A Advisors for a confidential discussion with them about your situation.
Don’t just take my word for it – have a listen to what a few of our clients have said about the value of investing a few hours to attend one of our meetings:
So, if you would like to learn more about the potential tax implications of your exit timing, reach out to us to find out when and where you can attend. No matter what, be sure to carefully examine the tax changes that may directly impact you and your family and move quickly to reduce the financial risk.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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