Selling Your Business? Here's What to Do BeforeYou Sign Anything
The Tax Structure of the Deal Matters Enormously
If you've built a business and you're getting serious about a sale, congratulations — and slow down. The decisions you make in the 12–24 months before a transaction can potentially have a seven-figure impact on how much you actually keep. From a buyer's perspective, they typically want to buy assets (so they can depreciate them and get a step-up in basis). From a seller's perspective, you typically want to sell stock (so the entire gain is taxed at long-term capital gains rates). The difference between these two structures can be 10–20 cents on the dollar after taxes. This is a negotiation, not a given.
Qualified Small Business Stock (QSBS)
If your business is a C-Corp, was issued after August 10, 1993, and meets certain IRS criteria, you may qualify for Section 1202 QSBS treatment — which excludes up to $10 million in gains from federal taxes entirely. Zero. This is one of the most powerful provisions in the tax code and is woefully underused because people don't know about it and don't structure their companies properly.
Installment Sales
If you can spread the sale proceeds over multiple years via an installment note, you spread your taxable income across multiple tax years — potentially keeping yourself out of higher brackets in any single year. There are tradeoffs (you carry credit risk on the buyer), but for the right transaction, this is a meaningful planning tool.
Charitable Structures at the Time of Sale
A Charitable Remainder Trust (CRT) or contribution to a Donor-Advised Fund before a sale can allow you to redirect a portion of the pre-sale proceeds to charity, take a deduction, and generate income — while reducing the gain you recognize. The timing has to be right and the structure has to precede the sale, not follow it.
The Most Common Mistake
The most common mistake sellers make is calling their advisor after they've signed a letter of intent. By then, most of the planning windows are closed. The conversation needs to happen early — ideally 1–2 years before you expect to transact.
Disclosure
Raymond James and its advisors do not offer tax or legal advice. Please consult the appropriate professional. Alternative investments involve specific risks that may be greater than those associated with traditional investments. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jim Maddux and not necessarily those of Raymond James.
