Capital Gain Rate Increase

Murphy Business Transfer ReportTo experience the lowest tax impact possible, now may be the best time to sell

Most people incurring a capital gain from selling a business are in, at least, the 25% tax bracket.  In 2003, the top tax rate on most capital gains was reduced from 20% to 15% for people in the 25% or higher tax bracket.

Due to a time lapse built into the regulations associated with the 2003 gain reductions, known as a Sunset Provision, the current capital gain rates are scheduled to expire on December 31, 2010.

The top capital gain rate will increase to 20% on January 1, 2011.

President Obama made a pledge to the American people that he and his administration would not raise taxes. He was able to make this pledge with confidence regarding the tax on capital gains because the Sunset Provision was already going to cause the rate to increase.

The big question now is; will the top rate only rise to 20% or will congress raise it higher?

When considering the financial impact resulting from the War on Terrorism and the overall increase in congressional spending, it is very likely that the issue of raising capital gain rates even higher will be introduced by some member of Congress.

Also it is important to keep in mind that with the pending Health Care Reform, people classified as wealthy, will experience an additional tax levy or surtax.  Assuming a final Health Care Reform bill is passed, a person with a capital gain which causes his / her total income to be above $280,000 will pay more than 20%
because of the surtax.

So, based on current regulations, 2011 capital gain tax rates will be at least 20%.  The additional health care surtax will likely cause some people to exceed a 25% aggregate rate.  Factor in the federal tax rate returning to 39.6 percent and the possibility of further rate increases on capital gains and it becomes very clear…

Anyone currently thinking about selling their business that waited until 2011 will wish they could go back in time to 2010.

Dan Carelli
Certified Business Intermediary
321 544-9595

Murphy Business & Financial Services – Florida’s Largest Business Brokerage

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