The capital gains tax rate is set to increase to 20% starting January 1st2013. Many business owners who have contemplated selling their business may be thinking about moving the process along a bit quicker in the months to come. If you are one of these business owners, however, it is vital to ensure you have thought about an appropriate exit strategy. Be sure to consult your tax advisor for expert advice.
Key note to consider-
Could underselling your business prior to 2013 be a bigger financial risk than paying capital gains tax?
Bizfilings.com – The end of 2012 may mark the end of many special opportunities to save on your tax liability. If Congress doesn’t act, the following changes will hit hard if you buy or sell assets after the 2013 New Year Countdown ball touches down:
- Buying capital assets:
- Bonus depreciation (currently 50 percent) will vanish entirely
- Expensing election maximum allowance will drop from $139,000 to $25,000
- Selling capital assets:
- Capital gains tax will increase to 20 percent for most non-corporate taxpayers
- A new 3.8 percent tax will be imposed on investment income, including most capital gains (making the effective capital gains tax 23.8 percent)
- Individual tax brackets will increase by three to five percent depending upon the bracket (e.g., the current 33 percent bracket will increase to 36 percent)
There is no need for panic, but there is a need for careful consideration of what your plans are to acquire or dispose of major assets within the next twelve months. Remember, however, the tax-tail should never wag the business-dog. Your primary consideration must always be: “What makes sound business sense?”
When evaluating your plans for the coming year, consider:
- Are you planning to grow your business in a way that will require purchasing additional capital assets? Would it help to be able to deduct more than one-half of the cost of that asset from your tax return? If so, then you need to put plans in motion to acquire the asset and place it in service before the end of the year.
- Are you considering selling any capital assets? For example, will you be liquidating any stocks and bonds to get access to cash or do you plan on disposing of any business property. If so, you will want to work with an accountant or other tax professional to ensure that you receive the income by December 31.
- Do you have significant appreciation in stocks and bonds? Should you consider “harvesting” by selling them in 2012 (when the capital gains rates are lower) and repurchasing the same (or similar) stock. Discuss this strategy with a qualified financial advisor to fully understand the trade-offs involved: The length of time you plan to hold the stock after the second purchase is critical in deciding if harvesting gains make sense.
By assessing your personal and business plans for the next year well before year’s end, you have time to make shrewd, tax-advantaged decisions that can help lower your taxes and grow your wealth
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