Discussion around potential new tax policies and its effects on sellers

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March 16, 2021

by a searcher from Harvard University - Harvard Business School in New York, NY, USA

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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Reply by a professional
from University of Illinois at Chicago in Deerfield, IL, USA
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 redacted 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.
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Reply by a searcher
from The University of Michigan in Mukilteo, WA, USA
This is also an interesting question at the state level. The Washington Senate just passed a bill that would impose a 7% tax on capital gains from the sale of stocks, bonds, and other assets in excess of $250K. Definitely will affect the way potential sellers will view such a large taxable event.
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