Did George Lucas Avoid a Death Star-Sized Tax Increase?
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George Lucas may have encountered something more powerful than the Force…the U.S. tax code. This week, he announced that Disney was buying his LucasFilm company, along with the Star Wars franchise.
Sure, selling the company will allow Lucas to focus more on his charitable work, but the timing of the sale has another perk: Lucas will avoid impending tax increases, according to MarketWatch’s Quentin Fottrell:
Long-term capital gains tax from the sale of assets held more than one year are taxed at a rate of 15% for investors in the 25% income-tax bracket or above (Lucas’s level), and zero for investors in the 10% or 15% bracket. Those rates are set to jump to 20% and 10%, respectively in January. “He probably wanted to take advantage of the lower rate on long-term capital gain while it’s certain,” says Bill Smith, managing director at CBIZ MHM, a national accounting and professional services provider.
Mark Calvey of the San Francisco Business Times does a back-of-the-envelope calculation and comes up with a tax saving big enough to impress even Jabba the Hutt:
Just take a look at the prospect of federal capital gains rates jumping from 15 percent to 20 percent next year on Lucas' sale. At a sales price of $4.05 billion, the 5 percentage point tax increase represents a higher tax tab of about $200 million — and that's just the capital gains tax.
Like the Millennium Falcon dodging Tie Fighters, the Wall Street Journal reported that other business owners have chosen to sell before January 1, 2013 in order to avoid higher taxes:
The owners of IM Solutions LLC, a Dallas-based online marketing company that serves the legal industry, figured the expected tax increases in 2013 would eat up about 8.8% of the proceeds from selling their business, said company president John Emerick. That 8.8% chunk could be up to $1 million or more of his share, he said.
"It was pretty clear to us that it made more sense for us to pull the trigger early," Mr. Emerick said. "For me—I'm 49—I'm thinking I might not earn that much for the rest of my life. The earnings for the rest of my life would be equivalent to the tax I'd be paying by waiting until 2013."
The decision to sell a business should be not dictated or forced by government policy, but that is what’s happening because Washington has failed to extend the current capital gains tax rate along with many other about-to-expire and already-expired tax provisions.
If I could wave my hand at Congress during the lame duck session like Obi-Wan Kenobi waved his at the stormtroopers, there would be a one-year extension to the current tax rates followed by comprehensive tax reform that would encourage economic growth and make the United States more globally competitive.
Until then, I'm off to Disneyland.