Sell Now – Capital Gains Tax Goes Up in 2013

From the Tax Prof Blog citing the WSJ. George Lucas isn’t alone. Business owners race to their sell businesses in 2012 to avoid higher capital gains tax in 2013.

Wall Street Journal:  Looming Tax Hike Motivates Owners to Sell, by John D. McKinnon:

A looming increase in the capital-gains tax rate next year is fueling sales of some privately-held businesses.

Many business owners—mostly founders who could gain a lot from a sale—are looking to close deals before next year, when the maximum tax on investment income is scheduled to rise from 15% currently to at least 23.8% on most capital gains, at least for higher-income households. Many sellers intend to convert their equity into retirement funds or just start anew.

“It just made more sense for me to take my chips off the table and go do something else,” said Bert Wolf, 60 years old, who has an agreement to sell his compressed-gas business, Acetylene Oxygen Co. of Harlingen, Tex., before year-end. Mr. Wolf added that if he waited until after the tax increase to sell, he would have to expand the business at the current rate “for at least 3 or 4 more years to achieve the same after-tax sales dollar.” He is profiting on the sale of his business to Praxair Inc., a public company.  …

The top tax rate will go up at year-end by at least 3.8 percentage points because of a provision in President Barack Obama’s health-care overhaul law. But that will be added onto a top rate that will depend on negotiations between Mr. Obama and Congress after the November election, when they are expected to seek a deal on numerous tax and spending measures.

Mr. Obama and Congress agreed in late 2010 to extend the current 15% capital-gains tax rate through this year. Absent further action, the top capital gains tax rate will rise to 20% on Jan. 1. After adding the extra charge from the health-care law for higher-income households, the maximum tax on investment income would be 23.8%. When combined with the scheduled expiration of some other tax breaks for high earners, the maximum tax on investment income would be as high as 25%.

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