Written by Brandi Fruik, CPA, MST
Imagine this: it’s the first day of your new business. The grand opening. And you’re thinking about…selling. It seems unlikely, but ideally, it’s what you would be thinking about.
For many business owners, selling a business is the largest liquidity event they will ever experience. Naturally, they want to retain as much of the proceeds as possible, which means paying the least amount of tax allowable by law.
When exit planning begins early, business owners typically have more opportunities to improve their financial outcomes. Choice of entity, opportunities to restructure, qualified small business stock (QSBS) qualifications, and domicile planning are all available options earlier in the process of getting a company started or a few years prior to selling. Mitigating taxes is far more difficult when the business is up and running, as most of this has been decided already.
If the signed letter of intent is already in place, there are significantly fewer options. Unfortunately, many business owners make the mistake of not notifying their tax accountants or financial advisors until this stage. Some even hold off until they’re submitting their financials at the beginning of the filing season. At this point, there may only be a few options remaining, such as charitable donations (donor advised funds) to lower taxable income or estate planning/gifting to lower the taxable estate.
Sellers and buyers often have juxtaposing desires for the outcome of a sale. Sellers would prefer a stock sale where they can sell the company and generally get long-term capital gain treatment (or qualify for QSBS) and not worry about the ongoing business anymore. Buyers prefer an asset sale where they could be getting a significant tax benefit via a step up in basis. Having third-party professionals involved can ensure a better outcome for all and help keep the sale on track and emotions out of the way.
One key planning opportunity that needs to be set up from the beginning is the QSBS mentioned above. Under H.R. 1, signed into law July 4, 2025, qualified small business stock has become more attractive. The asset limit has increased from $50M to $75M, and the per-taxpayer basic exclusion limit has increased from $10M to $15M. The legislation also introduced a phased-in exclusion schedule. Taxpayers may exclude 50% of eligible gain after three years, 75% after four years, and 100% after five years. One important consideration is state conformity. California, New Jersey, Pennsylvania, and Massachusetts are examples of states that have only partial or no conformity to federal law for QSBS. As a result, taxpayers should carefully evaluate the state tax implications before relying on the federal benefits of QSBS.
These days, many business sales come from unsolicited offers made by private equity. Sometimes those offers are so compelling that business owners get swept up in the excitement of the deal and move forward without consulting the proper advisors. The best outcomes are typically achieved when business planning, tax planning, and wealth planning are aligned from the start.
No matter what stage of business sale you are at, Clark Nuber has the resources to help you navigate towards the best outcome. Our multidisciplinary team supports business owners throughout the transaction life cycle, from early planning through post-transaction considerations. If you are interested in learning more about the life cycle of a transaction, visit the mergers & acquisitions page on our website.
Our team can assist with:
- Quality of earnings reports
- State and local income and sales/use tax exposure analysis
- Evaluate key tax attributes (net operating losses, tax credits, and basis adjustments)
- Succession planning and wealth transfer strategy
- Support with due diligence
- Tax structuring
- Purchase price allocation analysis for Form 8594 reporting
- Purchase and Sale Agreement review
- Deal term translation (tax-free merger vs. taxable sale)
- Earnout analysis
- Wealth and liquidity planning
- Family office or generational planning
- Estate and gift tax strategies
- Philanthropic giving strategies
- Investment advisory services
If you are considering selling your business within the next three to five years, or if you are thinking of setting up a business, please contact us. We can help guide you through this exciting time and ensure you retain as much value as possible.