Imminent Rise in Capital Gains Tax Spurs Business Sales

The ever-growing federal deficit and runaway government expenses have many experts predicting a capital gains tax increase from its current rate of 15 percent to 20 percent or more in 2011. 

The 15 percent tax rate on capital gains was passed in 2003 with a sunset provision, meaning it would eventually expire. The initial expiration date of 2008 was extended to 2010. However, the capital gains tax is set to return to its pre-2003 rate of 20 percent in 2011.

With imminent tax hikes on the horizon, capital advisors are beginning to warn of the effects this will have on the sale of businesses. Increases in capital gains tax to 20 percent or even higher will have a major impact on the after-tax proceeds of a sale.

Business owners who may have been delaying the sale of their business are being encouraged to consider selling in 2010 to take advantage of the current low tax rates. The alternative could be significantly lower proceeds from a sale in 2011 or beyond.