Monument Resource Center
Our clients hire us because they recognize the value of our Team’s unique, straight-forward, unfiltered opinion and our tailored advice designed to answer their questions, not everyone else’s. Below, you’ll find some of the most important questions we have been asked over the years to help you better understand the role we play and the advice we give.
Think back to December 2020: we knew that Joe Biden was elected President but–with the Georgia Senate seats still in a toss-up–we didn’t know what Congress’s makeup was going to be. That meant that trying to predict what was going to happen with tax reform was like asking a Magic 8 Ball.
Cut to today: we know that Democrats hold the majority in the House and a razor-thin majority in the Senate. That means tax reform may be on the table (among many other issues). And while we don’t have a specific tax plan yet, it’s worth re-examining Biden’s tax proposals from while he was campaigning.
Let’s take a closer look.
Biden’s campaign proposal regarding capital gains–the details.
Taxpayers with an income of over $1M could lose their preferential 20% treatment on long-term capital gains. If this happens, it means they would be taxed at ordinary income tax rates as high as 39.6%. This could be especially painful for those in the process of selling a business because, under these new terms, the profit from the sale of your million-dollar business would be less.
What does this mean for you?
Keep in mind that the tax preference for capital gains turns 100 this year, making it nearly as old as the income tax itself. This suggests that a revamp won’t come easy and if you’re a fan of the way things have always been, then the history alone of capital gains tax plans might prove to be encouraging.
Tax reform is bound to impact something for people in most cases, so it’s hard to definitively say if you have less than $1M in income that you won’t be affected by the changes. However, if you sell your business, and subsequently have more than $1M in taxable income for that year, you may be subject to a higher tax rate on your sale proceeds.
Selling a business soon?
If you’re planning to sell your business in the coming years, rather than selling all in one year, consider an installment sale to keep your income below the $1M mark at the end of year.
Seller beware: If you select deferred payout, you’re taking on the added risk that you may not receive all the payments you’re owed if the new owner is unable to fulfill that obligation–and, because you’re likely no longer an owner of the company, you won’t have the ability to course-correct if it’s moving in an unprofitable or unsustainable direction. Not getting your full payout may have a negative impact on your long-term financial plan. This is something to consider and make sure your term sheet is mitigating as much of this risk as possible.
What is the time frame?
We don’t know when the timing of these changes will take place quite yet—if at all. However, if you have the ability to sell your business now, consider doing so. Just know that this doesn’t eliminate the potential of a higher tax bill as Congress does have the ability to enact legislation in 2021 and make it retroactive to January 1, 2021.
Keeping it positive.
The upside of the proposed capital gains tax plan and potentially higher tax rate when you sell your company is that you’ve successfully sold your business which you put a lot of work into the building, developing, and growing of it. This is the mark of a new stage in both your personal and financial life, making it even more critical to plan for your future.
That’s where we step in.
Monument Wealth Management has the seasoned knowledge, unfiltered opinions, and the tools to ensure that your wealth is set up for success whether you’re planning out your retirement or curious about how you can optimize your tax strategy. Your unique Private Wealth Design will take into account your present needs and long-term goals, which serve as the foundation for developing a completely customized and collaborative game plan and investment strategy for your future financial state.
Remember, risk is what’s leftover after you have thought of and planned for everything. We believe in acknowledging risk, creating a margin of safety to survive those moments when risk presents itself, being financially unbreakable, and using the odds that are in our favor by letting time, patience, and discipline work their wonders.
Been burned in the past by previous wealth managers? We get why you may be hesitant to get back out there. That’s why during times of great change, it’s important to have a trusted partner like Monument to ensure your financial freedom–we’ve seen the firms and advisors who have missed the mark first-hand and that’s why we are aiming to change the industry one client at a time.
IMPORTANT DISCLOSURE INFORMATION
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