"I'm worried I'll lose too much of my sale proceeds to taxes."

Taxes on a business sale can take a significant portion of your proceeds if the transaction isn't structured thoughtfully. This isn't a reason to delay selling — it's a reason to plan in advance and work with the right advisors before you commit to anything.

We are not tax advisors. What we are is experienced in the deal structures that affect your tax outcome — and we work alongside your CPA to ensure that what we negotiate reflects your financial interests, not just the headline purchase price.

The Basics: What Gets Taxed and How

The tax treatment of a business sale depends on two major variables: how the business is structured (LLC, S-Corp, C-Corp) and how the deal is structured (asset sale vs stock sale, all-cash vs installment).

Asset Sale vs Stock Sale

In an asset sale — the most common structure for lower middle market transactions — the proceeds are allocated across different asset classes (equipment, goodwill, customer relationships, inventory), each of which may receive different tax treatment. Goodwill and certain other intangibles typically qualify for long-term capital gains rates. Depreciated tangible assets may trigger ordinary income tax on recapture.

In a stock sale, the seller typically receives capital gains treatment on the entire purchase price — generally more favorable. However, buyers usually prefer asset sales because they get a step-up in basis for depreciation. This creates a structural tension that affects negotiations.

Installment Sales

If you accept payment over time — a seller note — you pay taxes as you receive payments rather than on the full amount at close. This can spread your tax liability over several years and reduce the impact of a single large taxable event. The tradeoff is that you carry credit risk on future payments.

Earnouts

Earnout payments are typically taxed when received. Their tax treatment (capital gains vs ordinary income) depends on how they're structured in the purchase agreement — which is why this language matters.

What to Do Before You Sell

• Meet with a CPA who specializes in business transactions — not your general accountant — at least 12 months before you sell
• Understand your current basis in the business and what categories of assets you hold
• If you're a C-Corp, explore whether a qualified small business stock exclusion (Section 1202) applies
• Discuss whether an installment sale structure makes sense for your tax situation
• Consider whether charitable vehicles (donor-advised funds, charitable remainder trusts) make sense given your philanthropic goals and tax situation