JANAS has studied the post-COVID-19 Boom Economy expectations and is publishing a series of newsletters to address various actions that could have a significant impact on Middle Market Companies. Our Series 101 will reveal previous tactics supported by JANAS and used by our clients. Our purpose has been to take maximum advantage of the Economic Cycles of past decades to amass fortunes for Janas clients.
Each era held different opportunities—but all required a vision of what future actions companies and their owners must adopt in a changed world. Owners rarely retire at age 65, a mantra of the past. Older owners must consider how the New Economy and the New Federal Administration can impact their lives.
INCOME TAX CHALLENGES
Now that the Biden Administration is in office and active, change is in the wind. When new Federal Administrations come to office—particularly when the political party in power changes—income tax policy changes follow. During the last four Federal administrations, Tax Law changes have required an average of 502 days for passage post-inauguration.
NEW TAX RATES
The Biden Administration has indicated a plan to increase taxes. For Long-Term Capital Gains, the proposal is to increase the rate from 20% to 39.6%. New rates are unlikely to apply through the end of 2021 and possibly into the first quarter of 2022. Income Tax laws are generally not retroactive. Under current tax law, the Federal Tax for each $10.0 million of Long-Term Capital Gain on the sale of your business will be $2,000,000. Under the proposed new rate, the Federal LTCG tax would be $3,960,000, reducing the net cash to owners at transaction closing to $1,960,000 per $10.0 million of LTCG.
IMPACT ON YOU
If you are a mature owner planning to invest the proceeds from the sale of your company, the New Tax Rates discussed above would certainly be negative. In future issues, we will discuss alternatives to the sale of your company and how to benefit financially while enjoying your lifestyle—work, play—or both.
