Elections and Preparing for Potential Tax Changes in 2024

A Quick Guide for Business Leaders

Here we go! The 2024 elections are fast approaching, and with them comes the inevitable flood of end-of-the-world predictions from the media and pundits. Yes, we’ve all seen it before—click-bait headlines and doomsday scenarios vying for our attention. Don’t panic just yet—the apocalypse isn’t happening. However, potential tax changes are on the horizon, and they could influence when and how you decide to sell your business.

Whether you’re considering a sale, a recapitalization, or just plotting your next financial move, it’s essential to stay ahead of the game. Policy shifts in taxes, interest rates, and other economic factors could impact your business in significant ways. The general expectation is that interest rates may decline, but exactly when and by how much remains a mystery. While the interest rate rollercoaster unfolds, let’s focus on something more concrete: taxes.

Election Scenarios: What’s at Stake?

Two vastly different tax plans are emerging from the 2024 presidential candidates:

Democrats (Kamala Harris): Corporate income tax jumps from 21% to 28%, and capital gains taxes climb to 28% for individuals earning over $1 million. Mamma Mia!
Republicans (Donald Trump): Corporate income tax slashes to 15% for U.S. manufacturers, and capital gains stay put at 20%. Fewer tears!

What’s the Bottom Line? Who wins? Who knows?

Democratic Victory: If the Democrats win, selling or recapping your business sooner might save you from a higher tax hit down the road.
Republican Victory: If the Republicans win, you might want to hold off and enjoy those lower tax rates.

What to Do? How to Prepare for Potential Tax Changes

No matter the election’s outcome, it’s time to get proactive. Here’s how you can stay ahead and make sure you don’t lose out:

Call Your Tax Advisor

Your tax advisor should be your first stop on this “tax survival” tour. A good advisor will help you:

Model out the tax burden: They can help model different scenarios based on potential tax changes.
Structure for Efficiency: Explore strategies like Qualified Opportunity Zones or Section 1202 Qualified Small Business Stock (QSBS) to minimize capital gains taxes.
Accelerate Deductions: With tax hikes looming, now’s the time to get creative with tax-saving strategies.
Move to a Lower Tax State: Just kidding—sort of. Tax changes won’t happen overnight, but it’s worth exploring every option.

Wealth and Estate Planning is an Absolute Must-Do

Even if you already have an estate plan in place, you should still talk to your wealth management firm and estate attorney before a sale to ensure you don’t end up giving Uncle Sam more than his fair share.

Reduce Estate Taxes: Consider transferring assets into trusts to lighten your estate tax burden.
Plan for Wealth Transfer: Whether it’s to your spouse, kids, or a charity, align the sale with your long-term wealth transfer plans.
Explore Trusts: Charitable remainder trusts (CRTs), Spousal Lifetime Access Trusts (SLATs), and family trusts can all help you sleep better at night—tax-wise.

Pre- and Post-Sale Wealth Management

Once the deal is done, what next? A wealth management advisor can guide you through:

Pre-Sale Planning: Work with your Tax and Estate advisor in order to prepare for the sale to optimize tax efficiency.
Post-Sale Investments: Keep your money growing while managing risk. You don’t want to blow through your sale proceeds.
Retirement Planning: Ensure your post-sale income strategy doesn’t become a financial minefield.

Investment Banker to the Rescue

An investment banker can quarterback this decision cycle, provide you with a reality check and as well as guide you through the M&A process, working with your other advisors to keep you on track.

Coordinate with all of your advisors: Provide an overall market assessment and a set of strategic options. Is now the right time to sell, or should you wait? Your banker can manage this evaluation effort and provide the strategic insights you need.
Explore Recapitalization: Want to take some chips off the table but stay in the game? A minority or majority recap with private equity could allow you to cash out—potentially at a lower tax rate—while still benefiting from future growth.
Position for Maximum Value: The right banker will help you optimize operations, clean up financials, and market your business to the right buyers.
Execute a structured sell-side process: Bankers get you through a transaction – to a liquidity event.
Negotiate the Best Deal: From valuation to structure to business terms, they’ll help you get the most out of your sale.

Conclusion: Don’t Wait, Get Ready!

The 2024 elections could shake up the tax landscape, but with the right advisors in your corner—tax, estate, wealth management, and M&A—you’ll be able to navigate the changes like a pro. By planning ahead, you’ll ensure you’re ready to sell, recapitalize, or just ride out the storm, all while keeping more of what you’ve worked so hard to earn.

With over 20 years of expertise in guiding CEOs and Boards through buying firms or selling, and recapitalizing their businesses, Falcon is your trusted partner. Let us help you explore and assess your strategic options—reach out today to see how we can support your next move!

Disclaimer: Falcon Capital isn’t a tax, estate, or wealth advisor. We highly recommend that you talk to your CPA, tax, estate, or wealth professional for specific tax and estate advice.

Elections and Preparing for Potential Tax Changes in 2024

A Quick Guide for Business Leaders

Election Scenarios: What’s at Stake?

What to Do? How to Prepare for Potential Tax Changes

Conclusion: Don’t Wait, Get Ready!

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