Capital Gains Got You Spooked? You May not Need to Fret

Earlier this year, the NewBridge Group sent out an article entitled “Tax Implications of Selling Your Business in 2021 vs. 2022”.  We performed a “what if” analysis showing the tax effects of a business sale under President Biden’s proposed capital gains tax rate of 39.6% vs. the current rate of 20%. 

However, throughout the course of this year, there has been much negotiation in Congress, and there is a current plan proposed by the House Democrats to set the capital gains rate at 25%.  This plan was released by the House Ways and Means Committee on Monday, September 13^th. 

The draft bill contains a transition provision that applies the new 25% rate to gains realized after September 13^th, 2021, unless the seller had a binding contract entered into before that date. 

NewBridge and many other advisors had assumed that January 1, 2022 would be the likely deadline for any sale transaction.  However, this presents a much different scenario and could nullify any reason to rush towards a sale in 2021 if you have not already completed a transaction.  That said, many tax experts and financial advisors still believe that January 1,2022 is a likely deadline for a sale, given ongoing negotiations in Congress. 

*Keep in mind that this scenario has not been yet voted on and would also need to pass the Senate.  However, we believe that capital gains rates will not be any higher than 25% since Democrats proposed this and the Republican consensus is to keep them lower.

That said, NewBridge advises you to seek the advice of your tax attorney, CPA and/or financial advisor.  We want to be advocates for you and your legacy, and certainly don’t want to “spook” anyone into making rash decisions.

Despite this, NewBridge sees many reasons to consider a sale now, and into 2022.  Some of these include:

• Inflationary pressure  The cost of ordinary goods and services is rising.  There are many factors driving this from a shrinking labor pool to disruptions in our transportation infrastructure.  This has impacted the average family household making it more and more difficult to afford a quality funeral service. 

• Low interest rates  Current interest rates are relatively low on a historical basis.  Low interest rates allow buyers to make more aggressive offers, as they are typically leveraging their purchases.  Most economists expect rates to rise moving forward, and these could prove significant.

• Low unemployment rate  Many small businesses are struggling to find good quality staff in today’s environment.  This is only amplified in the funeral service industry which historically has modest salaries and compensation packages compared to other industries.  NewBridge works with several larger, regional funeral home buyers which can sometimes help mitigate these issues through sharing best recruiting practices, networking with local mortuary schools, and sharing staff if nearby locations are owned.

• Margin pressure  The increase in national and local cremation rates has made it difficult to remain profitable in today’s economy.  Other factors putting pressure on top and bottom lines, include:  reduced number of families selecting services that include ceremonies, Covid-19 preventing people from gathering for visitations, funerals, memorial services and receptions, as well as competition from discount and low-cost providers.

NewBridge continues to hold tremendous respect for the funeral service industry, including directors, attendants, assistants, grounds crew and all staff.  We feel the industry is often overlooked and understand the last few years have been the most difficult for many.

If you are interested in discussing our confidential valuation process and learning more about the private, regional buyers we represent, please give us a call at your convenience:

Todd Reich
404-542-9956
todd@newbridgegroup.com
www.newbridgegroup.com

In addition, please visit us at NFDA in Nashville October 17^th-19th!  We will be presenting during Expo hours at Booth # 1626