Taxes When You Sell Your Business
Work this with the Seller Proceeds Calculator.
Price Is Not Proceeds
The number you shake hands on is not the number you keep. The seller proceeds tool on this wing shows the subtractions that happen at the closing table, the debt payoff, the fees, the working-capital adjustment; tax is the other large subtraction, and it lands after. Sellers who plan only to the closing figure are often startled by the gap between that and what finally reaches their account, because the tax was never in the picture.
Capital Gains vs Ordinary Income
Not all of your gain is taxed the same way. Long-term capital gains are generally taxed more favorably than ordinary income, and how a sale is split between the two depends heavily on how the deal is structured and allocated. That split is not fixed by the price; it is shaped by choices in the paperwork, which is why two sales at the same headline number can leave two owners with meaningfully different amounts.
Allocation Is Negotiated
In an asset sale, the purchase price is divided across asset classes, and buyer and seller pull in opposite directions: what is good for the buyer's future depreciation is often bad for the seller's tax rate, and vice versa. The allocation is genuinely part of the deal, agreed in the contract and then filed consistently by both parties. Treating it as an afterthought hands value to whichever side thought about it first.
Spreading the Gain
Taking part of the price as a seller note or on an installment basis can spread the taxable gain into the years the payments actually arrive, softening a single large bill. That relief is not free: you are carrying the buyer's credit risk and betting the business keeps performing. It is a trade-off to weigh with eyes open, and the deal-structure page on this wing lays out what a note or an earnout is really worth once the risk is priced.
Get the CPA in Early
Most of the moves that lower a sale's tax bill (entity choices, the timing of the deal, state-residency questions, installment treatment, qualifying for particular exclusions) are only available before the deal is signed, not after. This is where a transaction-experienced CPA, not a once-a-year return preparer, earns the fee several times over. The purpose here is to help you ask the right questions early; the specific answers for your situation are professional advice, and worth paying for.
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