Sell Smart & Keep More of What You’ve Built
It’s tempting to focus on achieving the highest possible price when selling your business and overlook the silent deal-breaker: taxes.
But without a smart tax-saving strategy, a significant portion of your proceeds goes straight to the IRS. With the right tools in place, however, you can minimize taxes and walk away with more of what you’ve built—sometimes saving hundreds of thousands or even millions.
Six Tools to Dramatically Reduce Your Tax Burden:
1. Structure the Deal Strategically
The first big decision? Whether the sale is structured as an asset sale or a stock sale. Asset sales can trigger ordinary income taxes on certain items, which typically means a higher tax burden. Stock sales, on the other hand, often qualify for long-term capital gains tax rates—much lower in comparison.
While buyers often favor asset sales for liability reasons, this can be negotiated. Understanding the tax implications of each structure is essential for maximizing your after-tax return.
2. Leverage Powerful Tax Code Provisions
IRC Section 1202 (Qualified Small Business Stock, or QSBS)—is one of the most powerful tools in the tax code. If you’re a C-Corp and meet certain requirements, you may be able to exclude up to 100% of your capital gains, up to $10 million.
That’s not a typo—$10 million in tax-free gains is possible if you’ve held the stock for at least five years and meet the qualifying criteria.
3. Use Deferral Strategies: 1031 Exchanges, Installment Sales & Trusts
If your business includes real estate, a 1031 exchange allows you to defer capital gains taxes by reinvesting in like-kind property. For non-real estate assets, installment sales spread your income—and your tax liability—over multiple years.
Another sophisticated tool is the Deferred Sales Trust (DST). This strategy allows you to place proceeds into a trust, deferring capital gains taxes while giving you greater control over how and when the income is received and reinvested.
4. Use Insurance As a Wealth-Building Tool
Life insurance, when structured properly, can also support tax savings during a business sale. A policy inside an Irrevocable Life Insurance Trust (ILIT) can provide liquidity to cover estate taxes or equalize inheritance among heirs. In a buy-sell agreement, life insurance can be used to fund the purchase of your shares, creating a seamless and tax-efficient exit.
5. Time Your Sale for Maximum Savings
Year-to-year income fluctuations affect your tax bracket. Closing your sale in a year when you have other large income events could push you into a higher bracket. Consider timing the sale or spreading proceeds with an earnout or installment structure to reduce the annual tax hit.
6. Involve the Right Experts—Early
Final Thoughts
Selling your business is a life-changing event. It deserves careful, holistic planning—not just around the sale price, but around what you ultimately keep. The earlier you start and the more informed your strategy, the better your outcome will be.
Don’t just plan to sell your business. Plan to keep what you’ve earned.
Thinking about selling your business? Exit planning is essential to getting the results you deserve. As your business broker, I’ll help you polish every aspect of your business, address red flags, and highlight its true value.
Schedule a consultation or take our 15-minute Value Builder Questionnaire. It evaluates your company across 8 key areas and includes a free report plus a personalized consultation.