|Janas has studied the post COVID-19 Boom Economy expectation and is publishing a Series of Newsletters to address various actions that could have 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 is active, change is in the wind. When new Federal Administrations come to office – particularly when the Political Party in power changes, income tax policy change follows. 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 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 of $1,960,000 per $10.0 million of LTCG.
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 sale of your company and how to benefit financially while enjoying your lifestyle – work, play – or both.
Please contact one of our professionals to discuss
basic issues that are of vital importance to you and your family.
Today’s markets have some of the same uncertainties as in the Great Recession of 2008-2009. The Great Recession:
- Huge real estate bubble
- Noncollectable mortgage paper that wasn’t going to cure itself
- Precipitous economic decline
The current pandemic, though massively disruptive, is more transitory. Covid-19 will pass and the economy will get well. In the meantime, the United States Congress is progressing toward a $2.0 trillion Economic Stimulus Package. According to many economists, there will be a boom period to follow.
Businesses that are designated as essential services will be least affected including:
- Logistics & Storage
- Medical – Services and Products
- Aerospace & Defense
- Food and Agriculture
- Government Services
- Financial Services
- Chemical, Energy, Public Works etc.
These companies may experience stronger demand for their products and services.
During 2019, Private Equity Groups raised record levels of capital that now needs to be invested. The coronavirus has significantly decreased acquisition closings. For operating companies:
Valuations are high with huge acquisition demand and dwindling supply.
At Janas, we are encouraging Companies and their Trusted Advisors to explore with us preparation to enter the market within the next 60-90 days. Our intent is for our clients to benefit from an ebullient market that is sure to follow the decline of Covid-19.