As business owners look toward retirement, we often hear them say something like this: “This business is my retirement.” Without a doubt, most small business owners have invested not only their money, but also their blood, sweat, and tears into building a successful company, and even though they know, deep down, that it’s time to step back from day-to-day management, it can be tough to think about walking away from something they’ve built.
But for many business owners, the emotional challenges aren’t the only problem. Because they are counting on converting the value of their business into the funding source for a secure retirement, they face a number of financial questions, as well. Further, it’s often the case that simply selling a business to the highest bidder can have unexpected and unpleasant consequences, both for the seller and for the business itself. Business owners need to leverage the value of what they’ve built to provide for future financial security, but depending on the particular needs of the owner and the business, that process can take several different forms.
Either by selling to an outside buyer, an internal buyout by employees or a planned successor, a merger, or some other means, many business owners are facing the need to cash in on their years of hard work by transforming their equity in the business into investable cash. But a business sale requires thoughtful tax planning to maximize the benefits to both sellers and others whom they intend to benefit from the transaction.
And it’s a significant need: according to a report from the Gallup organization, the owners of more than half of US small businesses are at or near retirement age (55 or older).1 Despite this fact, many of these owners either have no succession plan in place or are otherwise uncertain how they will exit their businesses. In other words, if you’re a business owner contemplating the sale of your company in the near future, the time to start planning is probably now.
How far in advance should I start tax planning before selling my business?
At least two years before the liquidity event, and preferably much earlier, sellers should begin consulting with their tax, financial, and legal advisors to develop a comprehensive plan for managing the transaction to create optimal outcomes for the business owner. These conversations should ideally include not only the financial ramifications, but also the emotional and legacy implications, especially for founders whose identity may be entwined with the business. If the business has been a longtime family enterprise, discussing the “now what?” is particularly important as both the owner/founder and the next generations form plans for the next phases.
What about taxation on the sale of a business?
Often, minimizing the share of sale proceeds handed over to the government—either in the form of capital gains at the time of the sale or in later years as estate taxes during generational wealth transfer—is a key consideration in liquidity planning. Depending on the legal structure of the business and the specifics of the seller’s needs and intentions for benefits to be provided to others, tax planning may include several strategies:
- More favorable legal structures for the transaction, such as a Section 1202 qualified small business stock (QSBS) exclusion, which may allow the seller of a company organized as a C-corporation to exclude a portion of the capital gains realized by the sale of stock; 2
- Conversion from C-Corp to S-Corp to avoid double taxation;
- An installment sale arrangement to spread the tax liability over a period of years;
- A charitable remainder trust (CRT) that can be designed to defer taxes on capital gains and create an income stream;
- Recapitalizing and gifting shares to family members, trusts, or charities to remove future appreciation from the taxable estate before the transaction occurs.
It’s important to keep in mind that the effectiveness of tax and legal strategies such as these depends heavily on the specific circumstances of the business, so careful, detailed discussions are essential. Involving accredited tax and legal professionals in these conversations as early as possible can allow the business owner to devise a strategy that best meets their needs.
What is the difference between an asset sale and a stock sale for taxes?
The sale of an incorporated business usually takes the form of either an asset sale or a stock sale, and it’s important for both buyers and sellers to understand the implications of the two.
1. Asset sale. In this scenario, the buyer purchases specific assets and liabilities, and the legal entity and any unspecified risks remain with the seller. Some buyers prefer this, because they can avoid taking on hidden environmental or legal risks and also receive a stepped-up basis for the assets. Future depreciation or amortization can then allow them to save on taxes over time. On the other hand, this option may be less desirable for the seller, especially if the business is organized as a C corporation (which can result in double taxation, as the business pays taxes on the gains from the sale, and the owner pays again when the proceeds are distributed; proceeds from certain assets like inventory and accounts receivable are generally taxed at a less favorable ordinary income rate).
2. Stock sale. A stock sale transaction transfers ownership of the entire entity, including all assets and liabilities. While a stock sale is often the simplest route, buyers may not prefer this option, since it makes them liable for all obligations of the business, including any undisclosed liabilities that may later come to light. However, sellers may benefit from a stock sale by the ability to pay taxes at capital gains rates, which are generally lower than the marginal rate on ordinary income.
Who’s on Your Team?
Many reading this may feel a bit overwhelmed, and that makes sense. Between the tax implications, the legal aspects, and the investment decisions, it can seem like the business owner is getting peppered with information and advice from all sides. For this reason, a fiduciary financial planner may be helpful, acting as “quarterback” to coordinate the various aspects of planning for and executing a business sale.
At Tailored Wealth Solutions, we understand the challenges that can arise when the time comes to sell your business. We work with successful business owners to create exit plans that take into consideration the goals, needs, and resources that are unique to each individual situation. If you would like greater clarity around your exit planning, we are ready to help you find the answers you need.
SOURCES
1. Jonathan Rothwell, “Most Small-Business Owners Lack a Succession Plan,” Gallup Organization, March 24, 2025 (citing survey of 1,264 small business owners age 55 and up, “Pathways to Wealth,” conducted Sept. 20-Oct. 28, 2024); https://news.gallup.com/poll/657362/small-business-owners-lack-succession-plan.aspx (accessed August 28, 2026).
2. Barbara Weltman, “Qualified Small Business Stock: What It Is and How to Use It,” US Small Business Administration, April 13, 2017, https://www.sba.gov/blog/2017/2017-04/qualified-small-business-stock-what-it-how-use-it/, accessed August 28, 2026.
What do I need to know about taxes in retirement?
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