Discussion around potential new tax policies and its effects on sellers

by a searcher from Harvard University - Harvard Business School

3 years ago

Obviously don't want this to be a political discussion, so let's leave that aside. 

Over the last few days news has come out about the potential of a new tax regime (unclear whether this will apply to 2021 or 2022 will be first year, I am assuming 2022 for the sake of this discussion). If there is something that includes a hike in capital gains tax on individuals earning $1mm annually, wondering if anyone has any idea how this would apply to a 1-time sale of a company and if it does would we see a massive amount of people moving sales forward to this year? Would we see a drop in prices, compression of multiples, etc...

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8 comments

professional from University of Illinois at Chicago

Campbell relative to your follow-up question, a retroactive increase actually occurred under the Clinton administration. Some commentators warn of tax changes retroactive to January 1, 2021, but most feel that to be unlikely. I'm happy to share my whitepaper. Regards, Bill

3 years ago | like reply | 1 like

professional from University of Illinois at Chicago

Thanks Campbell and Luke. I have seen much acceleration of planning in impacted areas, such as estate, and anticipate an impact on sales, particularly as legislation progress. I've prepared a whitepaper., excerpt below Please contact me at --@----.com proposal impacts stockholders of regular C corporations most profoundly. The Biden plan increases the current 21% rate to 28%, or half-way back to the 35% rate before TCJA. It reintroduces a 15% alternative minimum tax rate. Corporations paying maximum rates will need to raise their pretax incomes by approximately 10% to maintain the same bottom line.

Moreover, the downside to C corporation double taxation increases###-###-#### For incomes above $1 million, assuming dividends at ordinary rates and the net investment income tax, the double tax grows to 59.2%, from 39.8% currently under TCJA.

3 years ago | like reply | 0 likes

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