Day 2: Capital Gains Tax Planning – How to Pay Less on the Sale

5 Tax Issues to Consider Before Selling Your Business to Reduce the Tax Burden

Day 2: Capital Gains Tax Planning – How to Pay Less on the Sale

Capital gains tax is one of the biggest tax hits when selling a business.

But with proper planning, you can minimize or even eliminate this tax liability.

1. Holding Period: The 1-Year Rule for Long-Term Capital Gains

✅ If you hold your business for over a year, the sale is taxed at long-term capital gains rates (15-20%).

❌ If you sell before one year, it’s taxed as ordinary income (up to 37%)—a costly mistake.

💡 Example:

• Sarah sells her company after 11 months—she’s taxed at 37% ordinary income rates instead of 20%.

• If she waits one more month, she saves $170,000 in taxes on a $1M gain.

2. Using an Installment Sale to Spread Out Tax Payments

Instead of taking a lump sum, you can spread the sale price over several years—reducing your annual tax bracket.

📌 Cited in IRC: Installment sales follow IRC § 453.

Tomorrow’s Topic: Earnouts and Installment Sales – Spreading Out Payments for Tax Efficiency

Some buyers won’t pay the full price upfront. Tomorrow, we’ll discuss how to structure payments to reduce your tax burden while protecting your income.

Got questions? Drop a comment or message me!