Tax Strategies for Business Sellers: How to Keep More of Your Exit Proceeds
"A well-planned exit isn’t just about selling—it’s about securing your financial future in the most tax-efficient way possible." – Jerome Myers
Introduction
Selling a business is a major financial event, and without proper tax planning, you could lose a significant portion of your proceeds to taxes. Many founders focus on getting the best valuation but fail to optimize their post-sale tax strategy. A well-planned exit includes not just the deal itself but also how to legally and strategically minimize tax burdens.
Key Tax Strategies to Retain More of Your Exit Proceeds
Structure the Sale for Tax Efficiency – Asset sales and stock sales are taxed differently. Work with an expert to determine the best structure for your deal.
Utilize Installment Sales – Spreading payments over multiple years can reduce immediate tax liabilities and keep you in a lower tax bracket.
Leverage Capital Gains Tax Advantages – Long-term capital gains tax rates are lower than ordinary income tax rates. Position your sale accordingly.
Use Qualified Small Business Stock (QSBS) Exemption – If applicable, this IRS provision can eliminate up to 100% of capital gains taxes on eligible stock sales.
Set Up a Charitable Remainder Trust (CRT) – Donating a portion of your proceeds to a trust can provide tax advantages while allowing you to support causes you care about.
Relocate to a Tax-Friendly Jurisdiction – Moving to a state with lower or no capital gains tax before selling can significantly impact your tax outcome.
Common Tax Pitfalls to Avoid
Neglecting tax planning until after the sale, leading to unnecessary tax burdens.
Failing to structure the deal in a way that minimizes tax exposure.
Overlooking deductions, deferrals, and exemptions that could significantly lower taxable income.
Ignoring estate planning considerations that could reduce wealth transfer taxes.
Final Thought
Taxes can erode a significant portion of your exit proceeds if not managed properly. The difference between a mediocre and an optimized exit often comes down to tax strategy. By proactively planning, you can protect and maximize the wealth you’ve worked so hard to build.
Your Next Step
Take the Exit Readiness Assessment to evaluate how prepared you are for a tax-efficient business exit and uncover opportunities to preserve more of your wealth.
