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Capital Gains Tax Increase - MO Farms & Small Businesses
Posted on: April 27, 2021 at 04:54:35 CT
ScottsdaleTiger MU
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The Biden Administration has proposed that capital gains earned by individuals with more than $1,000,000 of income be taxed at the maximum individual rate of 39.6%. Additionally, a 3.4% wealth tax would come into play, raising the rate to 43%. The amount of capital gain would be included in determining whether or not the taxpayer meets the $1,000,000 income requirement.
Missouri has many small family farms and family businesses. It is not uncommon for the owners to have acquired them a number of years ago and built their equity over time. For exaple assumes a family purchased a 200 acre farm in North Missouri a number of years ago for $500.00 an acre for a cost/basis of $100,000 amd mpw thiry years later, the family whishes to sell the farm (age, retierement, no one in the family desiring to continue to operate the farm). Assume the land is now worth $10,000 an acre or $2,000.000.
Assume the selling expenses are 10% of the sale price (realtor's commission, etc.) or $200,000. The net proceeds would be $1,800,000. Reducing the $2,000,000 sale price by the cost of sale, $200,000 leaves a net gain of $1,800,000.
If the gain is included in the calculation of whether or not the taxpayer has more than $1,000,000 of income, it clearly pushes the taxpayer into the class of taxpayers targeted by the proposal. It makes the $1,800,000 of gain subject to a 43% federal tax rate. The income tax on the transaction is $774,000 and it reduces the net amount due to the family to $1,024,000. Thus out of sale of $2,000,000, the family releazies approximately half.
This same analysis would essentially apply to small businesses, particularly family owned and operated.
Couple of thoughts: (1) what's the impact of this tax that pulls away the size of the ultimate reward to the famer or small businessman have on the incentive of the farmer or small businessman to make the farm or business successful, i.e. does it negataively impact that incentive; and (2) what is the impact on employment, i.e how avidly does the small busines seek to grow and expand and in the process add employees. Traditionally, small business hiring over time as been one of the factors leading to long term job growth.
Not proofed, so my apologies for typos, etc.
Missouri has many small family farms and family businesses. It is not uncommon for the owners to have acquired them a number of years ago and built their equity over time. For exaple assumes a family purchased a 200 acre farm in North Missouri a number of years ago for $500.00 an acre for a cost/basis of $100,000 amd mpw thiry years later, the family whishes to sell the farm (age, retierement, no one in the family desiring to continue to operate the farm). Assume the land is now worth $10,000 an acre or $2,000.000.
Assume the selling expenses are 10% of the sale price (realtor's commission, etc.) or $200,000. The net proceeds would be $1,800,000. Reducing the $2,000,000 sale price by the cost of sale, $200,000 leaves a net gain of $1,800,000.
If the gain is included in the calculation of whether or not the taxpayer has more than $1,000,000 of income, it clearly pushes the taxpayer into the class of taxpayers targeted by the proposal. It makes the $1,800,000 of gain subject to a 43% federal tax rate. The income tax on the transaction is $774,000 and it reduces the net amount due to the family to $1,024,000. Thus out of sale of $2,000,000, the family releazies approximately half.
This same analysis would essentially apply to small businesses, particularly family owned and operated.
Couple of thoughts: (1) what's the impact of this tax that pulls away the size of the ultimate reward to the famer or small businessman have on the incentive of the farmer or small businessman to make the farm or business successful, i.e. does it negataively impact that incentive; and (2) what is the impact on employment, i.e how avidly does the small busines seek to grow and expand and in the process add employees. Traditionally, small business hiring over time as been one of the factors leading to long term job growth.
Not proofed, so my apologies for typos, etc.
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Capital Gains Tax Increase - MO Farms & Small Businesses - ScottsdaleTiger MU - 4/27 04:54:35
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