In this world, nothing is for certain but death and taxes, and taxes are definitely unavoidable and significant in the sale of a business.  While careful strategic planning between the business owner and his attorney, accountant, financial planner and business intermediary can reduce the tax consequences after the sale, the government will inevitably claim its portion of the transaction.  For the last five years, business owners have enjoyed the lowest capital gains rate since the early 1930s and a reduced income tax rate.  However, that may likely soon change...

Historical:

In 2003, President Bush, in reaction to the dampening economy, urged the United States Senate to pass the Jobs and Growth Tax Relief Reconciliation Act of 2003.  Designed at stimulating the economy and creating jobs, this $350 billion tax package specified a series of provisions for reducing tax rates and increasing tax deductions.  For business owners, the most significant clauses were the reduced income tax for the top two brackets (from 35 and 38.6 percent to 33 and 35 percent respectively) and lowering the federal capital gains tax rate to the historic low of 15 percent.

Future Outlook

Regardless of party lines, political pundits and financial experts all agree that tax rates will definitely increase in the near future.  Business owners considering the potential sale of their businesses may want to plan ahead and discuss their options with a business intermediary today.