Many owners who were considering retirement in 2020 held their breath and decided to wait because of COVID-19. Even though most manufacturers were deemed essential and remained open, many still suffered as their customers were closed or scaled back. As if 2020 hasn’t been hard enough, owners are bracing for Biden’s Tax Plan and 2021 tax hikes.
Here’s a Look at Biden’s Tax Plan
Most industry experts estimate the tax increase to be in the area of $3.3 to $3.7 trillion. Some of this is in the form of payroll tax and estate tax and thus not relative to the sale of a business. But there’s plenty in Biden’s tax plan that is.
His plan would tax capital gains and dividends on incomes above $1 million at the ordinary rates (changing from 20% to 39.6%, plus the Net Investment Income Tax of 3.8% to make the highest capital gain rate 43.4%). This will affect every manufacturer selling their business.
The plan would also raise the maximum individual income rate back to 39.6% from 37%, and raise the maximum corporate income tax rate to 28% from 21%.
When Will These Changes Take Effect
It will take a Biden administration some time to get the new tax laws in place. Some fear that the changes could be retroactive to the start of 2021. While that’s not likely, it did happen in 1993 with the Clinton tax hikes.
If you’re a manufacturer considering retirement, we encourage you to speak with your tax professional now. The tax implications are potentially substantial. Many owners opted not to sell in 2020 over the fear that quality buyers weren’t making acquisitions in the year of COVID-19. While that has been true in many industries, manufacturing M&A has thrived and continues to do so. If you’d like to explore your options, we’re here to help. Contact Us to learn more.