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Selling a business and retiring in Connecticut? Think twice!


Selling a business and retiring in Connecticut? Think twice!

If you are contemplating selling a business and retiring in the state of Connecticut, there are several factors to be aware of.  The onerous tax rates in the state as well as the conditions surrounding retiring here make it a decision not to be taken lightly.

In this article, we will discuss:

  • Whether or not Connecticut is a good place to retire
  • What a capital gain is, and how it is potentially taxed
  • Selling a business in a high capital gains tax state like Connecticut
  • Tips for negotiating the sale of a business

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Retiring in Connecticut

Is Connecticut a good place to retire?

Yes, if you like lush forests and parks.

But from a financial standpoint - no.

Connecticut is the 43rd worst state to retire in, according to an Investment News study. One of the major drivers was affordability. Connecticut ranks 47th on the list of affordable states in our country. Cost of living is high and if you are a retiree on a fixed income or limited budget, it may not bode well for you.

But the cost of living is nothing compared to the onerously high tax rates that residents of this state are subject to – and we don’t just mean the gas tax. It’s even worse if you are selling a business in Connecticut, so much so that we’ve dedicated rest of this blog to a discussion of this topic.

What is the capital gains tax?

Before we get into what taxes are like in the state of Connecticut, we’ll take a minute to go over some basic definitions.

A capital gain is the difference between what you sold an asset for, over what you bought or created it for. You pay capital gains tax on the difference, and it varies from state to state. For further information about these terms, please refer to a past blog we wrote about 2021 capital gains taxes.

And why do capital gains matter so much if you are a business owner looking to sell your business and retire in Connecticut? We’ll get to that now.

Connecticut has high capital gains tax

Great news!  We’re number 47! 

According to The Tax Foundation’s 2021 State Business Tax Climate Indexour land of steady habits is among the worst in the country in overall taxation in their recent ranking. The index takes into account individual income taxes, sales tax, and corporate income taxes. To quote the summary: “The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates.”

On a positive note, Connecticut’s tax policy is fairly consistent, we were number 47 in 2014 and have maintained that dubious ranking every year through 2020. 



Selling a business in Connecticut 

In higher tax states like Connecticut, it’s important to take into account what the tax impact will be of effecting a sale. The 6.99% potential capital gains tax, frankly, will take a large chunk out of your life’s savings when you sell your business in the state of Connecticut.  When you sell, do you want to give away almost 7% of your life savings, potentially?

Perhaps not.

While we certainly don’t suggest that the tax policy of a given state is all one should consider when locating or remaining there, it is an important consideration, especially for business owners considering selling their major asset, their businesses. As is commonly known, its not what you earn, its what you keep. We think it is of paramount importance to obtain professional advice from your tax professional and financial advisor as to potential tax consequences, and to maximize the net benefit to you.

The daily news seems to indicate that businesses are leaving the higher tax states like California (number 48 on this list) in droves, and the trend does not seem to be changing anytime soon.

Some words about negotiating the sale of your business

You hopefully will recognize some value upon sale, but many businesses are sold over time. It may take years and years to recognize the full value. So, if you have a buyout over a couple of years, you’d better be pretty sure that your buyers, especially if they are your current employees, are capable of running the business without you. 

Why the buyer matters

If the business fails, well, so does your buyout. And that would be true even if they’re not employees that you are selling to. But if you are selling to your employees, you do know them and you would have confidence (one would hope) in them. However, that is a very major consideration. Will you receive full value if you sell to the people who have been working there for years?

Conclusion on selling a business and retiring in the state of Connecticut

As you can see, for business owners who want to sell their business and retire in Connecticut, this is no simple situation. We are a wealth management firm in Farmington, Connecticut and have helped many of our clients through such scenarios. For more information about selling a business and/or retiring in the state of Connecticut, please contact us.

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