If you're a business owner, you have probably been advised on the dozens of ways to save taxes in your business. But if you are a business owner looking to sell in the next 2-10 years, all of this industry bias toward kicking the tax problem down the road might set you up for disaster. Let me explain.
Borrowing a story from the "Wealth without Wall Street" podcast, imagine you sit down to sign the mortgage on your new house. On one line you see the balance that you owe. On the next line you see the down payment that you have brought to the table. Below the downpayment, you see the term, the length of the note. So far, so good.
Then you look at the interest rate: It's blank. And in parenthesis behind the blank, it simply says (TBD).
TBD?!
You wouldn't sign this mortgage in a million years. Your life experience (as well as the collective experience of everyone that you know) says this is a fool's errand. You must know what the interest rate is. It's insane not to know.
This is precisely what you are asked to do when you defer taxes into the nebulous land called "the future". You don't know what your tax rate will be when you retire, and the government has total authority in its sole discretion to hike your taxes if and when they want to. We're here to warn you, we think that day is coming. Here are four reasons why:
TJCA is (probably) going away: The so-called "Trump Tax Cuts" are set to expire at the end of 2025. The Blue team in D.C. doesn't want to renew them, and the Red team may not have the votes to do so unilaterally. If they expire, your taxes might go up. For sure, your estate tax exemption will revert, and you may have a good portion of your estate subject to the infamous "death tax".
Deficits: Our government has been running deficit spending for years on end, with no abatement insight end during COVID alone, the government's revenues were around $3 trillion, while its expenditure surpassed $6 trillion. This math does not work anywhere. They are running out of money.
Social Security: Social Security is on a collision course with bankruptcy. This doesn't mean that your benefits will go to $0, but it is likely that your Social Security benefits would be cut beginning as early as 2033. When this date gets closer, we are predicting that politicians will get more serious about raising revenue. This is generally code for raising taxes.
Your own picture: if you are a business owner with a business worth selling, your highest tax years may be ahead of you. Consequently if there are low were cost opportunities to move some of your money to a never-taxed-again bucket, this might be prudent to some extent.
Look, we cannot speak authoritatively to everyone's financial situation, but these are some things you should consider now, and if they match your situation, you should talk with us about ways of getting your dollars out of reach of the tax man as efficiently as possible.
We hope this has been helpful to you, and if you know of others that would benefit from reading this or other articles relating to Exit Planning, we invite you to share these with them.
With that, we thank you, and we will see you tomorrow!
Any opinions are those of Timothy Weddle and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
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