Dave Kauppi is the editor of The Exit Strategist Newsletter and Managing Director MidMarket Capital Advisors, providing corporate finance and sell-side advisory services to entrepreneurs in information technology and other high tech businesses. Dave graduated from The Wharton School of Business, University of Pennsylvania with a BS in Economics /Finance. Our ideal client is a business seller who wants more than an EBITDA valuation Multiple.
Wednesday, March 17, 2021
Proposed Capital Gains Tax Will Be a Killer to Business Sellers
Gains Tax Will Be a Killer to Business Sellers
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.. 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.
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.
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.