The current version of the “Buffett Rule”, as proposed by the Obama Administration today, would create a minimum tax of 30% on individuals with income over $1 million. The long term capital gain tax rate is 15% (for most individuals). This is the rate paid on most of the income that a business owner receives when they sell their business. If the proposed “Buffett Rule” becomes law, this would be an effective doubling of taxes paid upon the sale of a businesses over $1 million.
This should be a wake-up call for all small and medium-sized business owners. While there is no guaranty the “Buffett Rule” will become law this year, even if it doesn’t, it will certainly continue to be brought up as a “solution” to raise more revenue for a federal government that can’t pay its bills. Someone once said, “It’s not what you make…it’s what you keep.” Properly timing your sale can mean keeping more of your hard-earned money.
Everyone seems to have a New Year’s Resolution these days. Some want to lose weight. Others want to find a better job…or perhaps any job. And there are always those who resolve to quit smoking or some other bad habit for the umpteenth time. Good luck.
We suggest a different kind of New Year’s Resolution for the millions of you small and mid-sized business owners out there. And we promise it’s better than that resolution to lose 20 pounds by Easter.
Let’s face it, every one of you who owns a business will eventually retire. Some by choice. Some by circumstance. Of course, there are some you out there who plan to work forever. Well, even if you work until your last day on this earth, your spouse and/or children will still have to deal with your business once you are gone. But aside from the “work until I drop” crowd, most of you want to retire sooner rather than later. And certainly before you are too old to fully enjoy it.
Ah yes…retirement. Unlimited travel, a second home, perhaps even a third. It sounds wonderful indeed. The problem, as usual, is money. More specifically, a lack of money.
The vast majority of you have not saved enough for retirement. Yes, yes…we know all about it. The cost of college for your kids was much more than you expected. Your stocks didn’t go up. The real estate market went down. There was this, and there was that. We’ve heard it all before. But the fact remains that you haven’t saved enough…at least not enough to maintain your lifestyle and fully enjoy your retirement. We have yet to meet any business owner content on living their golden years at a reduced lifestyle.
The solution, you say, is to sell your business…and sell it for a lot of money. Cashing out of your business is your retirement plan. So you now have all (or most) of your retirement eggs in one basket (your business). Consequently, you have spent a great deal of time planning your exit with the help of expert advice…right? Wrong! We know that about 95% of you have no plan whatsoever.
Many of you dream of the day when that mythical buyer will arrive on angel’s wings…with a suitcase full of cash. We find it difficult to understand why exactly you think this way, but you do. Perhaps it’s psychological, like buying life insurance or writing your will. We don’t know. But we do know that you need to get serious about your future. You need a plan.
Don’t be like every other business owner…hoping and praying that one day you’ll hit the jackpot. Good fortune comes to the well-prepared. So prepare yourself. Start now by making a New Year’s Resolution to begin planning your exit from your business. And unlike those resolutions of the past, keep this one.