Capital Gains Tax on Business Sales Set To Rise 10%: What You Need To Know
If you’re a San Diego business owner and have dreams of selling, the right time might be sooner than you expected. Upcoming changes to capital gains tax rates may make it harder than ever to profit from the sale of your company — and we want to make sure you’re ready to sell at the most profitable time.
Read below to learn everything you need to know about the current state of capital gains tax and why the ideal time to sell your business might be coming up soon.
Disclaimer: The information provided in this article is for educational and informational purposes only. It is not intended as legal or financial advice.
Table of Contents
What Is Capital Gains Tax?
Capital gains tax applies to any form of investment, including everything from real estate to cryptocurrency. This tax levies the profits that you’ve made before selling your investment, and it also applies to your business when you decide to sell.
Why Are Capital Gains Tax Rates Changing?
The Trump Administration implemented the Tax Cuts and Jobs Act (TCJA) back in 2017, and this act had a big impact on capital gains tax rates. The provisions from the TCJA included limits on deductible expenses for businesses, new rules related to the depreciation of assets, and new tax credits.
Before the TCJA was implemented, the marginal rates for business sales were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Under the TCJA, these rates changed to 0%, 12%, 22%, 24%, 32%, 35%, and 37%. That’s a big tax break if you’re a business owner with a considerable amount of revenue.
Here’s the issue: the TCJA expires on December 31, 2025, which will revert capital gains tax on business sales back to its original set of marginal rates. That means that if you wait to sell your business, you might end up with thousands of dollars of additional taxes to pay out of your potential profits.
When and How to Sell Your Business
Given the upcoming changes in capital gains tax rates, there’s no better time to sell your business than between today and the end of 2025. However, while that might sound like a wide window, it takes time, energy, and, most importantly, a buyer, to successfully and profitably sell your company.
If you want to minimize your taxes and streamline the exit process, follow the steps listed below as you plan for the sale of your company:
Work With Professional Exit Strategists
There’s more to selling your company than the timing. Creating an exit plan helps you maximize the benefits of selling your company while avoiding any potential legal issues or snags. Working with exit planning experts can help you prepare for the sale and set you up for the next stage in your career.
We recommend partnering with an accounting firm for this process. With a focus on the details that you might miss, firms like San Antonio’s TGG Accounting can help you get the most out of the sale of your company, optimize the timing of the sale, and more.
Consider a Pre-2026 Sale
The TCJA’s impact on capital gains tax will only last through the end of 2025. That’s why we highly recommend selling your business within the timeframe when the act still impacts tax rates. If you can get your company ready for sale within this window, you stand to potentially save tens of thousands of dollars in taxes. Remember, the higher the value of your company’s assets, the higher your capital gains taxes will be when you sell.
Accurately Appraise Your Company
This is another aspect of a successful sale where an accounting firm can change the game for you and your team. An accurate appraisal of your company that accounts for all of your assets will help you get the money you deserve when you sell. It takes time to get a detailed and precise valuation, so start planning for your sale as soon as you can to avoid extra taxes after 2025.
The Next Step for San Diego Business Owners
There isn’t much time before the benefits of the TCJA won’t apply to the sale of your company anymore. Our best advice is to take advantage of this act while you can! Working with a certified exit planner from a professional such as the TGG Accounting team can help you take the next step in your career and save thousands in taxes. Contact someone like TGG today to learn more about their exit planning services and full-service business accounting.
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