Owners of Privately Owned Businesses - Your Clock is Ticking!

Unless Congress intervenes in the interim, on December 31, 2012, the 15% tax on long-term capital gains will cease to exist, and all capital gains will be taxed as ordinary income - an increase of approximately 133% to the top rate for ordinary income, which is 35%!! While the Federal tax code starts at 10% (income under $8,500) and is graduated upward to 35%, because the gain would be in addition to your other ordinary income, it is very likely that your capital gain after 12/31/12 will be at or near the highest rate. The current Tax Rates on Ordinary Taxable Income are:

	Tax Rate	On Income Over	& Income Up to
Single taxpayers:	10%	0	8,500
	+ 15%	8,500	34,500
	+ 25%	34,500	83,600
	+ 28%	83,600	174,000
	+ 33%	174,400	379,150
	+ 35%	379,150	no limit
Married Filing Jointly:	10%	0	17,000
	+ 15%	17,000	69,000
	+ 25%	69,000	139,350
	+ 28%	139,350	212,300
	+ 33%	212,300	379,150
	+ 35%	379,150	no limit

If you are the owner of a privately owned business and have a desire to sell and transition your life in the near to intermediate term, in all probability you have a significant amount of long-term capital gain built into the difference between your cost basis and your business's current market value. The bottom line is, if you are able to convert your business equity to cash prior to 12/31/12, you will keep in your pocket approximately 20% of the sales price that after 12/31/12 will have to be paid in taxes.

Unfortunately, the math is all too clear; therefore it should be taken into consideration as you do your financial planning for the next few years. While predicting what Congress may or may not do is foolhardy, in addition to the above tax increase, there is also a strong likelihood that there will be additional tax hikes in ordinary income rates, as the government needs more money to deal with the ever increasing national debt.