December 5, 2011 TAX CHANGES OFFER SELLER INCENTIVES

By Joe Berkery

Changes in tax policy now under discussion are likely to create an incentive for owners to sell privately held businesses sooner rather than later. While it’s difficult to predict with certainty where the current debate on fiscal policy will end up, an increase in the capital gains tax from the current 15% level is looking more likely for the 2013 tax year. As a result, many shareholders in privately owned companies are looking to consummate a sale in the next 12 to 15 months.

Another change in the tax code, this one related to the new healthcare legislation passed last year, will increase the tax on unearned income by 3.8% for individuals earning more than $200,000 and married couples earning more than $250,000. Taken together, the increase in potential tax liability on gains from the sale of assets could drive the cost of a sale much higher after January 1, 2013. Sellers who are considering a sale of their business for purposes of increasing liquidity or estate planning are advised to act now to initiate a transaction, as these deals typically take six months to close.