The Business owner’s personal tax is determined on the corporation type. Per the Article, “Whether long-term or short-term, a capital gain is factored into the dreaded 3.8% Medicare Surtax. The question is whether it is on top of a 20% long-term capital gain rate or a 39.6% rate for short-term capital gains. Further, timing is crucial because the 3.8% tax only applies when the taxpayer has exceeded a threshold for modified adjusted gross income ($250,000 for married taxpayers). The nature and timing of a business sale can greatly affect the business owner’s overall rate of personal taxes.” (Parrish, 2014)
The primary factor being time due to the income, which may or may not have been generated can determine how much tax will be taken on based on how much money was actually made- to be taxed. Though the long-term tax amount is shorter it is still much less than the short-term capital gain costs. If the $250,000 (if married) threshold is not met before the timing deadline, then it is considered long-term, which will only make the total tax to be paid 23.8%, while short term overall taxation will be 43.4% which is practically double in taxes based on timing alone. This pro and con seems like it would simply be a smarter move to have a business whether large or small grow slowly so that the timing is in place to not be taxed at such a high rate, and then allow the business to grow more fast to allow time to actually earn capital which will not be taxed as high in the end anyhow, but you will incur a tax. The pro-portion of this is, “Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.” (IRS.gov, 2011)
REFERENCES:
Ten Important Facts About Capital Gains and Losses. (2011, February 18). Retrieved October 6, 2015, from http://www.irs.gov/uac/Ten-Important-Facts-About Capital-Gains-and-Losses
Parrish, S. (2014, March 24). Zero To 60: What Business Owners Need To Know About Capital Gains. Retrieved October 6, 2015.
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