Exit Without Regret: Minimize taxes on your business sale

When you sell your business, the way you structure the deal can make all the difference in how much you actually keep.

One of the biggest traps owners fall into is taking the full amount of the sale as a lump sum. On the surface, that might sound appealing—you get a big check, all at once. But the problem is, that payout can push your income so high in that year that you become subject to additional taxes you may have never encountered before.

That’s why it’s so important to pause and think about your tax bracket now and in the future. For many owners, it makes sense to consider an installment sale instead of a lump sum. With an installment sale, you receive payments over time. This gradual transition can spread out your tax liability, keeping you from being pushed into higher brackets and helping you manage cash flow more strategically.

Of course, capital gains taxes are almost always part of the equation when you sell. Capital gains are based on how much your business has grown in value over time. To calculate that, you need to know your cost basis: what you originally paid for the business, plus the major improvements you’ve invested in along the way. From there, you subtract your cost basis from the sale price to determine the gain that will be taxed.

Here’s where the math matters:

• Federal capital gains tax can be as high as 20%.
• Massachusetts capital gains tax adds another 5%.
• In some states, the rate is higher (California is over 14%), while in others it’s zero.

That means depending on where you live, you could lose 25% or more of your sale price to capital gains taxes alone. And that’s before factoring in other possible taxes or surcharges that might apply based on your income level.

These numbers have a very real impact on the money that ends up in your pocket. Imagine selling your business for $2 million. At a combined 25% tax rate, that’s $500,000 gone straight to taxes. With careful planning—installment sales, timing your sale, or using other strategies—you can meaningfully reduce that number.

It’s also worth noting that your personal goals matter in this equation. If you don’t need all of the proceeds immediately, stretching the payments out might not just save on taxes, it might also help you align the cash flow with your retirement or reinvestment plans.

The bottom line: a sale isn’t just about the price you negotiate with a buyer—it’s also about the net proceeds after taxes. Without planning, you could walk away with far less than expected. With the right strategy, you can keep more of what you’ve earned and set yourself up for financial confidence in the next chapter.