December 1, 2016
Florida small business owners are continually asking me what I believe will be the major outcomes of Donald Trump's election win. One of Trump's key campaign promises (and we all know campaign promises do not always come true) is to reduce the Federal Corporate Income Tax Rate to 15% while eliminating the thousands of pages of special interest loopholes only enjoyed by the Fortune 500 companies capable of lobbying for these loopholes.
ONE POTENTIAL MAJOR OUTCOME IS AN INCREASE IN SMALL BUSINESS VALUATIONS.
Below is an analysis of the potential impact of a 15% Corporate Income Tax rate on Florida business valuations. The great news is the potential exists for up to a 33% increase in small business valuations. The damper on this great news is most small businesses do everything they possibly can to minimize Corporate Profits and avoid paying Corporate Income Tax -- and at 40.5% for Florida small business owners who can blame them. Most small business owners and their CPAs will find ways to expense Corporate Profits into owner's benefits such as salary, automobiles, insurance, etc..
The key to determining how much of the potential 33% increase in a business's value will be understanding what the IRS might deem to be a fair salary for the business owner be and the resultant tax burden on the difference between taking the incremental profits as Corporate Profits taxed at 15% plus the State of Florida 5.5% or taking the incremental profits as Salary and Bonus and paying the tax at your personal income tax bracket.
As this plays out over 2017, small and lower middle-market business owners will want to discuss tax strategy with their CPAs to minimize their tax burden and maximize the value of their small business.
For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com.
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