Selling your business can be the most profitable event of your entrepreneurial career — but without proper planning, capital gains taxes can take a significant bite out of your proceeds.
The good news is that with early preparation and the right strategies, you may be able to reduce, defer, or even eliminate a portion of the tax you owe. Here are some of the most common ways business owners can save on capital gains tax.
1. Structure the Sale Strategically
Asset Sale vs. Stock Sale — How you structure the transaction can impact the type and amount of tax you pay.
- Stock Sale – In many cases, the gain is taxed at long-term capital gains rates, which can be lower than ordinary income rates.
- Asset Sale – Certain asset sales may result in part of the proceeds being taxed at higher ordinary income rates (especially for depreciated equipment).
Work with your CPA and broker early to determine which structure minimizes your total tax burden.
2. Use the Installment Sale Method
Rather than receiving the entire sale price in one year, you can spread payments over multiple years. This approach:
- Spreads the capital gains over time, potentially keeping you in a lower tax bracket each year.
- Reduces the immediate tax hit in the year of the sale.
Watch Out: You still take on the risk that the buyer may default, so structure agreements carefully.
3. Contribute to a Qualified Retirement Plan
If you’re still operating the business in the year of sale, you may be able to make large contributions to tax-deferred accounts such as:
- SEP IRA
- Solo 401(k)
- Defined Benefit Plan
These contributions can offset taxable income in the sale year.
4. Consider a 1031 Exchange for Real Estate
If part of your business sale involves real estate (e.g., an office building, warehouse, or retail location), you may be able to use a Section 1031 like-kind exchange to defer capital gains by reinvesting in other qualifying property.
5. Explore the Qualified Small Business Stock (QSBS) Exclusion
If your business is a C corporation and qualifies under Section 1202, you may be able to exclude up to 100% of the gain from federal taxes on the sale of qualified small business stock, subject to certain holding periods and limits.
6. Use an Opportunity Zone Investment
Under the Opportunity Zone program, you can defer and potentially reduce capital gains tax by reinvesting proceeds into a qualified Opportunity Fund within 180 days of the sale.
7. Charitable Trusts or Donor-Advised Funds
Placing part of your business interest into a Charitable Remainder Trust (CRT) or contributing to a donor-advised fund before the sale can:
- Avoid capital gains tax on the donated portion
- Provide an immediate charitable deduction
- Distribute income to you over time (in the case of a CRT)
8. Relocation & State Tax Planning
If you live in a state with high income tax, relocating to a no-income-tax state before the sale could significantly reduce your state tax liability — but this requires planning well in advance to meet residency requirements.
Key Takeaways
- The earlier you start planning for a sale, the more tax-saving strategies you can use.
- Many of these approaches require coordination between your business broker, CPA, attorney, and financial advisor.
- A well-structured sale not only maximizes your business value but also protects your hard-earned proceeds from unnecessary tax erosion.
Zeal Business Brokers is a trusted business brokerage and mergers & acquisitions firm with years of experience guiding buyers and sellers to achieve the best outcomes in their business sale transactions, can save on capital gains tax. Our expert team is here to help you negotiate favorable terms, provide strategic advice, and ensure you make wise decisions. Contact us today to learn how we can help you protect your interests and close your deal with confidence!