Texas Proud
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- May 16, 2005
- Messages
- 17,313
This is where I agree. From personal experience I can tell you we have invested back into our company many times over what our company is actually worth. That investment comes in many forms...capital investment, employee benefits, addition of new employees...etc. Let's say for example a company was started with $20,000 and today it is worth 5 million. Let's also say that over the last 10 years the company invested 5 million back into the business....I don't believe there should be cap gains either. So I think we agree here. Nor do I think it should be taxed or a tax factor with the estate tax...but it is. There is no way to get a credit against basis for this "reinvestment".
The problem many small business owners face is personal liquidity particularly if it is an S Corp. Many take out life insurance or "save their you know whats off"....specifically to protect their heirs against escalation of the value of the stock in their estates. Otherwise....their heirs inherit the problem of paying the tax bill with potentially no money to do so.
I do not know many successful small businesses who do not reinvest back into their company.
Now...I would also agree that if someone started a small business for $20,000, never put a dime back in and in 30 years the business is worth 5 million...there should be some sort of cap gain....but it is more than likely if the small business was run this way...it would have gone bankrupt in the first 3 years.
I am just doing this for discussion purposes... not to try and rile you up...
But, if you reinvest money back into the business.... either your basis has gone up and the cap gain would not be as much... OR, the money reinvested has not been taxed... so the first is investing money that has been taxed before putting it back in the business and your basis is higher, the second is with untaxed money and your cap gain would be higher...
The problem is the estate tax treats both the same... and taxes both the same...