Selling a business involves complex tax implications, and how your sale is taxed largely depends on the structure of the transaction and the type of business entity you own. Generally, there are two main ways to structure a business sale: a stock sale and an asset sale. In a stock sale, when you sell your ownership interest directly to the buyer, the profit you make is typically calculated as the difference between the sale price and your tax basis in the stock. This type of sale is commonly subject to long-term capital gains tax rates, often around 15% if you qualify, which can result in a more favorable tax outcome.

On the other hand, an asset sale involves selling the individual assets of your business rather than the stock. This method can be more complicated from a tax perspective because different assets may be taxed differently. Parts of the sale might be subject to long-term capital gains tax, while other portions could be taxed as ordinary income. Moreover, in cases involving C-corporations, asset sales can sometimes lead to double taxation – where profits are taxed at both the corporate level and again when distributed to shareholders. This structure demands careful planning to optimize your tax liability.

There are also strategic tax planning options available that can further influence your overall tax burden. For instance, if your business qualifies under the Section 1202 Qualified Small Business Stock (QSBS) rules, you might be eligible to exclude up to 100% of your capital gains, subject to certain conditions such as a holding period of more than five years and a cap based on either $10 million or 10 times your adjusted basis (source). Additionally, the timing of the sale and whether you receive payment as a lump sum or through an installment sale can also affect your tax outcome.

Because the tax implications of selling a business are multifaceted and highly dependent on individual circumstances—such as your business structure, the nature of its assets, and state-specific tax rules—it is advisable to work with experienced tax professionals and financial advisors. At Iconic, we understand these complexities and integrate a comprehensive approach into our 5-step selling process, ensuring that you remain informed and in control throughout the transition. Learn more about our approach on The Iconic Way.

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• Research from Turner Investments points out that how long you’ve owned your business can be a critical tax factor—longer ownership may increase the likelihood that gains qualify for favorable long‐term capital gains treatment.

• Turner Investments also emphasizes that state tax rules often diverge from federal guidelines, meaning that localized tax planning is essential to fully understand your overall liability.

• According to ExitAdviser, asset sales—especially for C‑corporations—can trigger double taxation, where profits are taxed at both the corporate level and again when distributed to shareholders, making the structure of your sale a key strategic decision.