President Biden bowed out of the 2024 Presidential race. But the clock is still ticking on the Trump-era tax cuts. And President Biden’s proposed budget, including substantial tax increases, is still in play.

Business owners who are considering a business exit in the near term may want to consider an exit before Trump-era tax cuts expire.

Impact on Small Businesses

Small businesses will face unique challenges under the new budget:

• Surtax on Business Income: A 5% surtax on business income over $400,000 (House Budget Committee) could impact small businesses’ ability to reinvest profits, potentially stifling growth and innovation.
• Capital Gains and Dividends – Taxation of long-term capital gains and qualified dividends proposed to spike to 44.6% at ordinary income tax rates for individuals earning over $1 million (Tax Foundation, PwC).
• Profitability and Operations: The increased tax burden could reduce operational capacity and profitability, making it harder for small businesses to compete and grow (House Budget Committee).
• Compliance Burden: The National Federation of Independent Business (NFIB) has expressed concerns that these changes will disproportionately affect small businesses, particularly with new compliance mandates like paid leave (House Budget Committee).

Corporate Tax Increases

The proposed budget includes several increases in corporate taxes that could have substantial effects on businesses of all sizes:

• Corporate Tax Rate: Set to increase from 21% to 28% (PwC, EY Tax News), this hike means that businesses will need to allocate more of their revenue to taxes, reducing the funds available for reinvestment, expansion, or distribution to shareholders.
• Corporate Alternative Minimum Tax (CAMT): Increasing from 15% to 21% (EY Tax News), this change aims to ensure that profitable corporations pay a minimum amount of tax regardless of deductions and credits. Companies previously paying lower rates due to extensive tax planning will see higher liabilities.
• Excise Tax on Stock Buybacks: Rising from 1% to 4% (EY Tax News, Penn Wharton Budget Model), this tax aims to discourage corporations from repurchasing their shares, a common practice used to boost stock prices. This could affect companies’ decisions on capital allocation and shareholder value strategies.

Economic Impact

The broader economic implications of these tax changes are also significant:

• GDP and Employment: Long-term GDP is expected to decrease by 1.6%, and employment could see a reduction of approximately 666,000 full-time equivalent jobs (Tax Foundation). Wages might decrease by 1.1%, further impacting consumer spending and economic growth.
• Capital Stock: A projected decline of 2.7% in the capital stock will affect investments and overall economic growth (Tax Foundation, Penn Wharton Budget Model).

How Sunbelt Can Help

At Sunbelt, we specialize in helping business owners navigate these complex changes. Our services include:

• Comprehensive Valuation: Detailed business valuations to help you understand your business’s worth and set realistic expectations.
• Strategic Planning: Developing formal exit plans that maximize net proceeds and ensure a smooth transition.
• Market Insights: Keeping you informed with the latest market trends and insights to make well-informed decisions.

Educational Resources

We offer a video series called “24 Rules to a Successful Business Exit,” which provides a quick-start guide to the exit process. Check them out here.

Conclusion

Understanding and preparing for the proposed tax changes in Biden’s 2025 budget is crucial for business owners. Strategic planning and expert guidance can help mitigate negative impacts and ensure a successful exit. Contact us today for a no-cost value range assessment and start planning for your future.

Sources:

1. PwC
2. EY Tax News
3. Penn Wharton Budget Model
4. Tax Foundation
5. House Budget Committee
6. National Federation of Independent Business (NFIB)

About Sunbelt Business Advisors of Minnesota

The Sunbelt Business Advisors Minneapolis office is the largest office in the Sunbelt network with a staff of over 50 advisors, associates, analysts, and business development representatives. In 2021 the firm was recognized by the International Business Brokers Association as the #1 firm in the country and the first firm in history to sweep all three first-in class awards. Sunbelt provides services to business owners interested in selling their businesses, assistance with merger and acquisition activities, complimentary business value assessments, and advice to business owners seeking to maximize their life’s work when they exit. The firm provides business brokerage and mergers & acquisitions services for companies with revenues from $500,000 to $150 million. More information is available at www.sunbeltmidwest.com (<Under $5 million revenue) and www.tnma.com ($5 – $150 million in revenue).