Selling in 2010 Makes Good Tax Sense
August 22, 2010
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The significance here is that this year is a very opportune time to cashin corporate retained earnings. This is sometimes done during business sales to cash-out the retained earnings, lessening the tax burden. If this is done in 2010, the tax rate will be 15%. Next year, dividends are taxed at a maximum rate of 39.6%, as the ordinary income tax rate regains its old position as well.
To illustrate the point, a taxpayer in 2010 who cashes out retained earnings of $1,000,000 will pay $150,000 in taxes; next year, the same taxpayer could pay up to $396,000—well over double the 2010 tax consequence. This is a difference of $246,000 for the same amount of dividends distributed to the same person.
With the imminent increase in the capital gains tax and the dividend tax rates, owners of closely-held businesses are well advised to sell their businesses this year rather than next in order to take advantage of the lower tax rates.
Dr. Bart A. Basi is an expert on closely-held companies, an attorney, a Certified Public Accountant and the Senior Advisor of the Center for Financial, Legal & Tax Planning, Inc. He is a member of the American Bar Association’s Tax Committees on Closely-Held Businesses and Business Planning. For more information, contact Dr. Basi at phone: 618/997-3436 or visit: www.taxplanning.com.
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