Capital Gains Taxes in Selling a Business: Should You Delay the Sale Until 2025?

As the political landscape shifts and the potential for changes in capital gains tax looms, many business owners are re-evaluating their sale strategies. One of the critical questions they face is whether it’s better to close the sale of their business sooner or delay it until after the turn of the year, particularly in light of a possible increase in capital gains taxes under a new administration.

Tax Uncertainty Under a New Administration

Historically, changes in capital gains taxes often accompany new administrations, especially those focused on tax reform. If Kamala Harris becomes president in 2025 and proposes raising capital gains taxes, business owners who have delayed their sale into the new year may face higher taxes on their gains. However, the effective date of such tax changes can vary:

• Some tax changes are retroactive, potentially impacting transactions that took place earlier in the year.
• Others may take effect from the date of legislative approval or at the start of a future fiscal year, offering some breathing room for tax planning.

Given this uncertainty, it’s essential to evaluate the risks and benefits of delaying a business sale.

Benefits of Delaying the Sale

• Tax Strategy Planning: Delaying until 2025 may allow a seller to plan better and assess the actual tax landscape under the new administration. If changes to capital gains taxes are less impactful than feared, waiting could lead to more favorable tax treatment.
• Increased Business Valuation: A delay could also provide more time for the business to grow, increase revenues, or improve its financials, leading to a potentially higher sale price.
• Market Leverage: If the seller believes market conditions will improve or more favorable buyers will emerge, waiting might provide more negotiation power.

Risks of Delaying the Closing Date

• Retroactive Tax Changes: There's always a possibility that the new administration could make tax changes retroactive to January 1st, 2025, nullifying any potential benefits of delaying the sale.
• Unfavorable Market Shifts: Economic conditions can change rapidly. Interest rate hikes, buyer fatigue, or a shift in industry trends could decrease the business's valuation or cause a buyer to back out.
• Operational Risks: Business performance could fluctuate during the delay. A downturn in revenue or a change in market conditions could hurt the overall value of the business by the time the sale is closed.

Should Taxes Be the Driving Force Behind the Sale?

While taxes are an important consideration when selling a business, they should be evaluated alongside other critical factors like market timing, business performance, and buyer availability. A well-rounded exit strategy considers the full picture, not just the tax implications.

Conclusion

Delaying a business sale in anticipation of potential changes to capital gains taxes requires careful consideration. While the possibility of higher taxes in 2025 under a new administration, such as Kamala Harris’s, is a valid concern, the risks of market changes and the uncertainty around when those taxes would take effect are also important. Sellers should work closely with M&A advisors and tax professionals to evaluate the best course of action and minimize risks, whether they choose to close sooner or later.

Dr. Allen Nazeri, aka "Dr. Allen," boasts over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.

He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" and the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.

To have a confidential discussion about your company and receive a free valuation, please email Allen@ahcteam.com or Allen@ahcpexits.com

You can now communicate with Dr. Allen's clone https://www.delphi.ai/drallen

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