Wednesday, March 17, 2021

Proposed Capital Gains Tax Will Be a Killer to Business Sellers

Proposed Capital Gains Tax Will Be a Killer to Business Sellers

According to the Tax Foundation, a main target of President Biden's tax proposal is Long Term Capital Gains Tax.  He proposes taxing Long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million and eliminates step-up in basis for capital gains taxation.[2]. So if your business sells for $10 million, your tax bill will go from $2 million under current laws to $3.96 million under the Biden plan. If you had considered selling in the next couple of years, you may want to consider 2021 as your best exit plan year. We believe that this tax change will not go into effect until 2022.

The good news is that buyer interest in software, information technology and technology focused businesses is exploding. This is the market's acknowledgement that this niche is the engine of economic growth. There is too much money pursuing too few deals (meaning companies that are formally on the market for sale). Because of this, strategic buyers and private equity groups are actively contacting business owners directly. They are also regularly contacting MidMarket Capital looking for deals.

What if you are not ready to retire in 2021?  What if your plan was to retire in 2023? You can move up your sale timeframe (to 2021), but not necessarily your exit timeframe. No, I am not talking in riddles. What I mean is that you should take your chips off the table with a sale transaction sooner rather than later. Your eventual exit could be in 2023 after working full time for the new owner for 1 year to transition customer relationships and intellectual property, followed by a limited consulting engagement for one year.

We would love to confidentially discuss your situation.  For a free initial consultation, please email me at, or call me at my direct office number (269) 231-5772 or on my cell at (630) 215-3994.


Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, providing business broker and investment banking services to owners in the sale of information technology, software, and other technology based companies. Dave is also the editor of the Exit Strategist Newsletter and author of the Book Selling your Software Company - An Insider's Guide to Achieving Strategic Value

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