Factors to Consider
Business owners who are thinking "I'd probably like to retire in a few years and I'll sell my business then" may be surprised to learn just how much longer they will be working for Uncle Sam instead of themselves!
From 1987 to 1996, capital gains were taxed at 28% - nearly double the current 15% rate. Let's see how a return to previous rates might affect your retirement plans.
Like most successful business owners, you are probably good at managing your bottom line to provide the income you need to maintain your lifestyle.
Is that number growing or shrinking?
Higher insurance costs, higher energy costs and other factors have meant your bottom line has been flat for years. In other words - your business hasn't changed much and probably won't change much into the next few years when you'll want to retire.
Further, let's say your business is worth $2,000,000 including real estate, equipment and other assets. You didn't pay that much for your business and real estate; you have built up a fair amount of Goodwill over time and THAT is what you are banking on for retirement. If your tax basis is $500,000, your capital gains might be $1,500,000 and the taxes owed could be $225,000. If taxes return to their previous level of 28%, your tax bill could shoot up to $420,000.
The extra money you plan to set aside for retirement may be eaten up by additional taxes you will pay by waiting that "few more years."
That's three years of fishing, playing golf or sailing you may never get back.
That's three years with your grandchildren that you may miss.
When you consider that it may take a year or longer to actually sell your business, next year may be too late to start your plan. Let's start planning today!
