Let’s suppose you have owned a business for any years and are considering selling it to retire (kinda the dream…). Say it is worth $5 million and your capital gain is $4million
You will be facing state and federal capital gains taxes, as high as 40% depending on where you live.
It gets worse.
If you are a C-corp, you could face tax at the corporate level AND the personal level. We call this double taxation.
Most buyers want an asset sale, not a stock sale, to avoid liabilities of the seller (legal and debts). There are also some tax advantages.
Sellers in a C-corp might prefer to sell stock, to reduce taxes, but that might expose the buyer to additional taxes and legal liability.
You now see how this conflict can kill a deal (the tax-tail). (Note that there are ways to mitigate some of this, but we will save that to another day).
However, all is not lost if the double taxation occurs, because the seller can use other strategies to offset/reduce the personal side of the capital gain.
Saving money on corporate taxes or personal taxes is really about saving money.
Money is money.
So, before you get too deep into the tax questions, spend some time talking to your CPA and financial advisor about your future plans to sell your business, and let them come back to you with options for planning.
If they do not come back to you with good options, then maybe you need new advisors.