Selling a Business: Expert Tax Guide & Checklist Released

IRAEmpire.com has released a new and updated guide on selling a business for consumers.
SACRAMENTO, CA / ACCESS Newswire / June 21, 2025 / Selling a business might leave you with only 66% of the proceeds after taxes. That's a huge chunk gone to Uncle Sam.
Ryan Paulson, Chief Editor at IRAEmpire, says, 'The gap between your sale price and the money that ends up in your bank account can be eye-opening if you're selling a small business you built yourself. The sale typically triggers a long-term capital gain tax of 20% plus an extra 3.8% net investment income tax. Many business owners mistakenly think they'll pay ordinary income rates that can reach almost 50% in total. Let's look at real numbers: A business started with $100,000 and sold for $10 million would face federal capital gains tax that cuts the proceeds by about $2 million.'
Schedule a Consultation With America's Best Business Selling Experts
State taxes pack an even bigger punch. California residents could pay an additional 13.3% tax on their capital gain. A $10 million sale with a $9.9 million gain would leave you with just $6.6 million after federal and state taxes. Tax planning becomes crucial to protect the wealth you've built over years.
This detailed guide shows you seven clear steps to sell your business. You'll learn about tax implications and ways to legally reduce your tax burden. The goal? To help you keep more of what you've worked so hard to build.
Alternatively, explore the best business sale brokers of 2025 on IRAEmpire here.
Step 1: Prepare for the Sale with Tax in Mind
The gap between a good and great business sale comes down to preparation. Smart tax planning could determine whether you keep most of your money or watch it vanish in taxes.
Start tax planning early
Your tax planning should begin long before you put your business on the market. Research shows businesses that plan their exit 3-5 years ahead achieve 20-40% higher valuations than those who rush the process. Starting early opens up more tax-saving options that you won't find if you're in a hurry to sell.
Business owners often focus only on growing their company. They don't think about tax implications until it's too late. This leads to reduced profits after taxes. The best exits happen when tax planning starts at least two years before the sale. Many experts suggest starting five years ahead.
Early planning lets you build the right team. You'll need a financial advisor, CPA, business attorney, and estate attorney. These professionals can work together to create a financial strategy that lines up with what you want after selling.
Review your business structure
Your business structure plays a big role in how taxes will affect your sale. Each type-sole proprietorship, partnership, LLC, S Corporation, or C Corporation-comes with its own tax rules that can change your final proceeds.
Pass-through entities (LLCs, partnerships, S Corporations) send sale gains straight to your personal tax return. C Corporation owners should note that selling stock instead of assets helps avoid double taxation, which could cut your proceeds by about 50%.
The structure also decides if your sale counts as an asset or stock sale. Buyers usually want asset purchases for tax benefits. Sellers do better with stock sales because of better capital gains treatment. Knowing these details before negotiations helps you keep more money after taxes.
Organize financial records
Clean, well-laid-out financial records speed up sales and help you get the right price. Buyers will examine your financial health carefully. Messy or incomplete records raise red flags.
You need these key financial documents:
Buyers bring in accounting experts to check everything. They match your statements against bank records, invoices, receipts, and tax returns. Good documentation builds trust and gives you more power in negotiations.
Getting your financial statements professionally audited before the sale helps too. You'll spot weak points early and can fix issues that might lower your company's value or make negotiations harder.
The time you spend getting your business ready for sale-especially with tax planning and financial organization-leads to higher values and smoother deals. Taking care of these things early helps you keep more of the wealth you've built.
Step 2: Choose the Right Sale Type
Selling your business brings a crucial decision: choosing between an asset sale or a stock sale. This choice will substantially affect your tax burden and determine the money you'll keep after closing the deal.
Asset sale vs stock sale: pros and cons
An asset sale means the buyer purchases individual business assets instead of the entire entity. These assets include equipment, inventory, intellectual property, and customer lists. You keep the legal entity after the sale, though many businesses close down afterward.
Buyers love asset sales because:
The seller's point of view shows some drawbacks:
A stock sale works differently. The buyer purchases your ownership interests directly, and the entire business-assets and liabilities included-goes to the new owner.
Sellers usually benefit from stock sales because:
Buyers often shy away from stock sales because:
Consult the Best Business Brokers in the US Here.
How sale type affects taxes when selling a business
Your sale structure creates major tax differences. The IRS looks at each asset separately in an asset sale. Different assets face different tax treatment:
You and the buyer must use the 'residual method' to split the purchase price across asset classes. This split greatly affects your tax bill because:
Pass-through entities (S corporations, LLCs, partnerships) send gains straight to your personal tax return. C corporations might pay twice in asset sales-corporate-level tax on gains plus shareholder-level tax on distributions.
State taxes add another layer of complexity. Asset sales might need you to split gains among multiple states, just like operating income. Stock sales mostly get taxed in your home state.
Buyers and sellers want different tax outcomes, which makes the final structure a big negotiation point. Many buyers pay more for asset sales to make up for sellers' higher taxes. Some deals include 'tax gross-ups' where buyers increase the price to cover the extra taxes you'd pay in an asset versus stock sale.
Step 3: Plan for Federal and State Tax Implications
You need to understand your tax burden before selling your business. Poor tax planning can cut your proceeds in half. What looked like a great exit could end up disappointing.
Capital gains tax overview
Capital gains tax becomes your biggest tax concern when selling a business. The tax applies to the difference between what you sell for and your 'basis' - your original cost plus improvements. Let's say you started your business with $100,000 and sell it for $10 million. Your long-term capital gain would be $9.9 million.
The federal capital gains rate starts at 15% for business sales with assets held over a year. This rate can go up to 20% if you have higher income. The math is simple - multiply your gain by the rate that applies to you. In our example, a 20% federal capital gains tax would reduce your money by about $2 million.
State income tax differences
State taxes can make a big difference in what you keep. The impact varies based on where you live:
Where you live at the time of sale really matters. States use strict 'domicile' tests to figure out if they can tax you. Running your business in multiple states could mean splitting up the gain. You might need to pay taxes in each state where you did business.
Depreciation recapture and NIIT
The Net Investment Income Tax (NIIT) adds another 3.8% federal tax. This kicks in if your modified adjusted gross income tops $200,000 (single) or $250,000 (married filing jointly). The NIIT stacks on top of capital gains tax and can push your federal rate to 23.8%.
Depreciation recapture can also increase your tax bill. The IRS takes back previous depreciation deductions when you sell business property for more than its depreciated value. They tax this recaptured amount as ordinary income - up to 37% instead of capital gains rates. Business equipment (Section 1245 property) faces recapture on all claimed depreciation. Real estate (Section 1250 property) has a maximum recapture rate of 25%.
Step 4: Use Smart Tax Strategies to Reduce Liability
Tax-saving strategies can reduce your liability by a lot while selling a business. Smart planning helps you keep more of your hard-earned proceeds legally.
Installment sales to spread tax
You can receive payments over time instead of all at once with an installment sale. This spreads your tax liability across multiple years. The approach works if you get at least one payment after the year of sale. Your tax brackets stay lower and cash flow management improves.
You'll only report the gain from payments received that year rather than the entire amount. A $5 million business sale might be structured as $1 million yearly for five years. This could lower your overall tax rate.
Notwithstanding that, installment sales come with limits. This method won't work for inventory sales or publicly traded securities. On top of that, you must report depreciation recapture as ordinary income in the year of sale whatever your payment schedule.
QSBS exclusion for C Corps
C corporation owners can exclude up to 100% of capital gains through Section 1202. This applies to qualified small business stock (QSBS) held longer than five years.
The exclusion covers $10 million or 10 times your original investment basis, whichever is greater. To cite an instance, a $2 million investment later sold for $22 million could mean excluding the entire $20 million gain. This saves about $4.76 million in federal taxes plus state taxes.
Your C corporation must meet these requirements:
Charitable giving and 1031 exchanges
Donating business interests to charity before selling works well. Moving part of your business to a charitable remainder trust (CRT) or donor-advised fund lets you:
A 1031 exchange helps defer capital gains through reinvestment in similar business property. This mainly applies to real-life estate assets in your business. Your investment rolls into new qualified property.
Note that charitable donations need planning before any sale agreement becomes final. Both strategies need proper documentation and must follow IRS guidelines strictly.
Step 5: Finalize the Deal with Expert Help
Your business sale's success depends on proper documentation and compliance. Tax mistakes can get pricey, and even the best-planned exits can fall apart without executing the final steps correctly.
Filing IRS Form 8594 for asset sales
Asset sales require both buyer and seller to file Form 8594 (Asset Acquisition Statement) with their tax returns for the transaction year. The IRS determines seven asset classes, and this form documents how the purchase price gets split among them. This allocation affects:
Cash and general deposit accounts get allocated first, and other assets follow in a specific order. Buyers must use the residual method when their basis in the assets only depends on the amount paid.
Avoiding tax surprises at closing
Negotiations often hit snags over purchase price allocation. Sellers usually want more value assigned to goodwill because it's taxed at capital gains rates. This beats having value tied to tangible property, which faces ordinary income rates and depreciation recapture.
You should take these steps to close smoothly:
Working with M&A advisors and tax pros
Smart business owners bring in transaction specialists early - usually months before going to market. A qualified tax advisor can help you:
Many deals collapse during due diligence because tax problems pop up unexpectedly. Good advisors earn their keep by spotting potential issues before buyers find them. They keep deals moving forward and help you get the full value from your years of hard work.
Consult the Best Business Brokers in the US Here.
Selling Smart: Final Thoughts on Maximizing Your Business Exit
Your business sale marks the pinnacle of years-maybe even decades-of hard work and dedication. Without doubt, protecting your proceeds from excessive taxation stands as a crucial part of this substantial transition.
This piece highlights how proper tax planning can make the difference between keeping 50% versus 80% of your sale proceeds. Federal capital gains taxes, state income taxes, depreciation recapture, and the Net Investment Income Tax create a complex tax world that needs careful navigation.
Here are the key takeaways:
Start your tax planning at least two years before selling-five years would be ideal. Early preparation lets you implement powerful tax-saving strategies that aren't available close to the sale date.
Your business structure affects taxation deeply. The choice between an asset sale or stock sale substantially affects your after-tax proceeds. Stock sales usually offer better tax treatment for sellers.
Tax minimization strategies like installment sales, QSBS exclusions for C corporations, and strategic charitable giving can help. These approaches legally reduce your tax burden while arranging with your post-sale financial goals.
Of course, build a qualified team of advisors including tax professionals, M&A specialists, and financial planners. Their knowledge helps spot potential risks before they affect your transaction.
Your business sale represents one of your life's biggest financial events. The investment in proper planning and professional guidance multiplies by preserving the wealth you've built. The final sale price matters less than the money that reaches your bank account when the deal closes.
Consult the Best Business Brokers in the US Here.
FAQs
Q1. How is the tax calculated when selling a business? The tax is calculated based on the difference between your tax basis (original cost plus improvements) and the sale proceeds. This difference is typically subject to capital gains tax, which can range from 15% to 20% at the federal level, plus potential state taxes and a 3.8% Net Investment Income Tax for high-income sellers.
Q2. What documents are essential when selling a business? Key documents include detailed profit and loss statements for the past 3-5 years, balance sheets, cash flow statements, 5-year financial forecasts, and all relevant permits and licenses. It's also crucial to have your operating agreement or articles of incorporation ready, as these outline the business's ownership structure and governance.
Q3. How do I report the sale of my business on my tax return? You'll need to report the sale on IRS Form 4797 (Sales of Business Property). This form requires information such as the property description, purchase date, depreciation, and cost of purchase. For asset sales, both buyer and seller must also file Form 8594 (Asset Acquisition Statement) with their tax returns for the year of the transaction.
Q4. Are there strategies to reduce tax liability when selling a business? Yes, several strategies can help reduce tax liability. These include structuring the sale as an installment sale to spread the tax burden over time, leveraging the Qualified Small Business Stock (QSBS) exclusion for eligible C corporations, and considering charitable giving or 1031 exchanges for certain assets.
Q5. How far in advance should I start planning for the sale of my business? It's recommended to start planning for the sale of your business at least two years in advance, with many advisors suggesting a five-year timeline. Early planning allows you to implement more tax-saving strategies, assemble the right team of professionals, and potentially achieve a 20-40% higher valuation compared to businesses with shorter planning timelines.
About IRAEmpire.com: IRAEmpire.com is a trusted platform providing financial education, business insights, and unbiased reviews. Our mission is to empower small business owners, retirees, and investors to make informed, confident decisions.
CONTACT:
Ryan Paulson
[email protected]
SOURCE: IRAEmpire LLC
press release

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Yahoo

12 minutes ago

• Yahoo

The Boston Celtics will make some trades that will upset their fans this NBA offseason

The Boston Celtics will make some trades that will upset their fans this NBA offseason. Or at least that is the point of view that former Celtics beat writer and current NBA analyst for Heavy Dot Com Steve Bulpett. Speaking on a recent episode of the the CLNS Media "Celtics Beat" podcast, hosts Adam Kaufman and Evan Valenti took some time to talk about the possibilities of Boston making some drastic trades this summer with Bulpett. The collective bargaining agreement (CBA)'s second apron penalties are having their desires effects on the Celtics, and the general consensus is that veteran players on costly contracts like Jrue Holiday and Kristaps Porzingis could be on the move to get ahead of a potentially historic tax bill (and the penalties it will bring with it). Advertisement Take a look at the clip embedded below to hear what they had to say about what Boston might elect to do this offseason. If you enjoy this pod, check out the "How Bout Them Celtics," "First to the Floor," and the many other New England sports podcasts available on the CLNS Media network: This article originally appeared on Celtics Wire: The Celtics will make trades that will upset their fans this offseason

Yahoo

13 minutes ago

• Yahoo

The Stock Split Announcement All of Wall Street Is Waiting for Is Back on the Table -- and It's Not Netflix or Costco!

Investors typically gravitate toward companies announcing and completing forward stock splits. Three brand-name, non-tech stocks have completed forward splits in 2025 -- and there's more to picking out which company is next to split than a high share price. The logical candidate to split its stock next is a cash cow with a sustainable moat whose shares are, once again, within a stone's throw of an all-time high. 10 stocks we like better than Meta Platforms › Although the rise of artificial intelligence (AI) has been the premier attention-grabber for investors on Wall Street over the last two-plus years, it's far from the only trend responsible for lifting the broader market to new heights. Since 2024 began, the market's major stock indexes have been propelled by some of the most influential businesses announcing and completing stock splits. A stock split allows a publicly traded company the opportunity to cosmetically adjust its share price and outstanding share count by the same factor. These changes are superficial in the sense that they don't affect a company's market cap or in any way impact its underlying operating performance. Splits can move a company's share price up or down, but there's a sizable variance in how these two types of splits are perceived by the investing community. Reverse splits, which increase a company's share price, are normally shunned by investors. Reverse splits are often enacted by struggling companies that are attempting to avoid being delisted from a major stock exchange. In comparison, investors typically love public companies that complete forward splits, which are designed to lower a company's share price to make it more nominally affordable for investors who can't buy fractional shares through their brokers. The businesses undertaking forward splits usually have rich histories of recurring profitability. While three brand-name businesses have taken the plunge and become the latest stock-split stocks this year, the split announcement that all of Wall Street is waiting for is officially back on the table. Last year, more than a dozen high-profile companies announced a split, and a number of these companies were high-growth AI stocks, including Nvidia, Broadcom, Super Micro Computer, and Palo Alto Networks. The "Class of 2025" stock-split stocks all come from outside the tech sector. Wholesale industrial and construction supplies company Fastenal (NASDAQ: FAST) was the first to cross the proverbial finish line by completing a 2-for-1 forward split after the close of trading on May 21. This was the ninth time since Fastenal's initial public offering in 1987 that it's completed a forward split, and it's a clear indication that the company's strong cyclical ties and on-site innovations are helping to strengthen its relationship with core clients. Following in Fastenal's footsteps was auto parts supplier O'Reilly Automotive (NASDAQ: ORLY), which effected a 15-for-1 forward split after trading ended on June 9. O'Reilly's stock has soared on the heels of a mammoth share-repurchase program that's seen the company buy back close to 60% of its outstanding shares since the start of 2011. O'Reilly's hub-and-spoke distribution model, which ensures that more than 153,000 stock keeping units (SKUs) can reach drivers and mechanics the same day or on an overnight basis, has also been a boon to sales. The third premier non-tech stock-split stock this year is automated electronic brokerage firm Interactive Brokers Group (NASDAQ: IBKR), which completed its first-ever forward split (4-for-1) after trading wrapped up on June 17. Interactive Brokers' investments in technology and automation, coupled with continued optimistic investor sentiment, have increased aggregate accounts and equity held on its platform, as well as the total number of trades being completed on a quarterly basis. Aside from forward stock-split stocks (often) out-innovating and out-executing their peers, companies completing forward splits have a knack for outperforming Wall Street's benchmark index, the S&P 500. Based on an analysis by Bank of America Global Research, since 1980, companies have gained an average of 25.4% in the 12 months following their initial forward split announcement. In comparison, the S&P 500 has averaged an 11.9% increase over these same 12-month periods. This historical outperformance is why investors gravitate toward stock-split stocks and often try to guess which brand-name company will announce a split next. But keep in mind that there's more to picking out Wall Street's next stock-split stock than locating a company with a high share price. Some companies with a high share price have demonstrated no interest in conducting a split. For instance, Costco Wholesale's (NASDAQ: COST) board of directors feels confident that its shareholders have access to fractional-share purchasing through online brokers. Even though its stock is hovering around $975 per share, as of this writing on June 19, Costco's board is in no rush to announce a split. Given Costco's inherent competitive size advantage, as well as its membership-based model that keeps customers loyal to the brand, we're likely to see its share price extend well past $1,000. The composition of a company's shareholder base matters, too. If an overwhelming percentage of a company's shares are owned by institutional investors, there's not much of an incentive to conduct a split. Money managers aren't in need of a lower share price to purchase stock. Even though streaming services provider Netflix (NASDAQ: NFLX) is trading more than $500 higher than it was the last time it completed a forward split, less than 20% of the company's shares are owned by non-institutional investors. Despite Netflix's growing streaming subscriber count and $1,200-plus share price, there's no immediate need to conduct a split, given its low retail investor ownership. While Fastenal, O'Reilly Automotive, and Interactive Brokers making their shares more accessible to everyday investors is a welcome sight, there's another highly influential company that appears primed for a stock split -- and the catch is it's never announced one before. Whereas every member of the "Magnificent Seven" has completed at least one split since going public, social media titan Meta Platforms (NASDAQ: META) has not. But with its share price rebounding to $700 following the stock market's tariff-induced swoon in April, the possibility of a stock-split announcement is very much back on the table. Unlike Netflix, more than 27% of Meta's shares are held by everyday investors. This is a large enough percentage that a split would make sense. A forward split would also be a logical choice, given the strong likelihood of Meta's stock heading even higher. In March, Meta had an average of 3.43 billion people visiting its family of apps daily. This "family" includes social destinations like Facebook, WhatsApp, Instagram, Threads, and Facebook Messenger, among others. With no other social media destination offering as many eyeballs as Meta, advertisers are willing to pony up a premium to get their message(s) in front of users. More often than not, Meta is going to benefit from its strong ad-pricing power. Furthermore, CEO Mark Zuckerberg's company is sitting on a mountain of cash. It closed out the first quarter with more than $70 billion in cash, cash equivalents, and marketable securities and is pacing $96 billion in annual run-rate net cash from operations through the first three months of the year. Being a cash cow affords Meta the opportunity to aggressively invest in its AI-driven future, as well as to support its shareholders via a dividend and share buybacks. Best of all, Meta Platforms' stock remains reasonably inexpensive despite its run-up to nearly $700 per share. A sustained growth rate in the mid-teens, coupled with the company's historically conservative profit forecast, points to its forward price-to-earnings ratio of 24 being a bargain. Wall Street is waiting for Meta Platforms to take the plunge and become the highlight stock-split stock of 2025. The case for that happening arguably grows stronger with each passing day. Before you buy stock in Meta Platforms, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Meta Platforms wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $664,089!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $881,731!* Now, it's worth noting Stock Advisor's total average return is 994% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Bank of America is an advertising partner of Motley Fool Money. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sean Williams has positions in Bank of America and Meta Platforms. The Motley Fool has positions in and recommends Bank of America, Costco Wholesale, Interactive Brokers Group, Meta Platforms, Netflix, and Nvidia. The Motley Fool recommends Broadcom and Palo Alto Networks and recommends the following options: long January 2027 $175 calls on Interactive Brokers Group and short January 2027 $185 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy. The Stock Split Announcement All of Wall Street Is Waiting for Is Back on the Table -- and It's Not Netflix or Costco! was originally published by The Motley Fool

Yahoo

15 minutes ago

• Yahoo

Tesla tiptoes into long-promised robotaxi service

SAN FRANCISCO (Reuters) -Elon Musk's vision of Tesla's future is set for a public test on Sunday, when a dozen or so self-driving cars in Austin, Texas start a limited, paid robotaxi service. Though Tesla is dispensing with a webcast product launch event helmed by Musk, fans will be scouring the internet for videos and reports from the coterie of invited riders that will be allowed to hail the small stable of Model Y SUVs for trips within a limited area of the city, accompanied by a Tesla safety monitor in the front passenger seat. The driver's seat will be empty. "Wow. We are going to ride in driverless Teslas in just a few days. On public roads," posted Omar Qazi, an user with 635,200 followers who writes often about Tesla using the handle @WholeMarsBlog and received an invite. The service in Austin will have other restrictions as well. Tesla plans to avoid bad weather, difficult intersections, and won't take anyone below the age of 18. Musk has said he is ready to delay the start for safety reasons, if needed. Tesla is worth more than most of its biggest rivals combined, and Musk has said that is supported by the company's future ability to create robotaxis and humanoid robots. For years, he has promised self-driving cars were just around the corner. Commercializing autonomous vehicles has been risky and expensive. GM's Cruise was shut down after a fatal accident and regulators are closely watching Tesla and its rivals, Alphabet's Waymo, which runs a paid robotaxi service in several U.S. cities, and Amazon's Zoox. Tesla is also bucking the young industry's standard practice of relying on multiple technologies to read the road, using only cameras. That, says Musk, will be safe and much less expensive than lidar and radar systems added by rivals. Nonetheless, Musk says he is being "super paranoid about safety" with the rollout. "So far, this launch lags significantly behind the company's promise and what competitors have already delivered," said technology researcher Forrester's principal analyst Paul Miller. Fans have welcomed the caution and the long-awaited arrival. Qazi said on X, Tesla was launching "extremely cautiously, which is good."