The Year Before You Sell: A Tax-Planning Checklist for Business Owners

Most of the tax-planning moves that can reduce the tax on a business exit need 12 months of runway. By the time the letter of intent lands, the decisions that mattered most are already fixed.

Get the Structure Right Before You Go to Market

The most expensive mistake owners make is waiting until the purchase agreement is drafted to ask whether the entity is set up correctly. C-corp sellers typically want a stock sale to avoid a second layer of tax, while buyers often push for an asset deal to get a stepped-up basis. For a pass-through business, an asset sale triggers ordinary income on depreciation recapture and shifts more gain into higher-rate buckets. Both structures need modeling before you open data rooms.

If your C-corp stock counts as qualified small business stock (QSBS) under Section 1202, gain up to the greater of $10M or 10x your basis can be excluded from federal tax entirely for stock issued before July 5, 2025, provided you held the shares more than 5 years and the company met the original issuance, $50M gross-asset, and active-business tests. For stock issued after July 4, 2025, the July 2025 tax law raised the cap to $15M and the gross-asset limit to $75M, and it allows a partial exclusion after 3 years (50%) or 4 years (75%), with 100% after 5. It does not survive a last-minute entity conversion.

Depreciation recapture deserves the same early look. Section 1245 recapture on equipment and Section 1250 recapture on real property are taxed at ordinary income rates. Knowing that exposure early tells you whether accelerating or deferring depreciation in the final year changes anything.

Spread the Pain: Installment Sales, CRTs, and Charitable Bunching

A lump-sum close in a single tax year can push millions of dollars into the 20% capital-gains bracket and, depending on how you own the business and whether you materially participate in it, trigger the 3.8% net investment income tax on top. Two legitimate structures change that math.

An installment sale spreads principal payments, and the taxable gain, across multiple years. If your marginal rate drops after the sale because W-2 income disappears, deferring recognition can help. The trade-off is counterparty risk: you become an unsecured creditor of the buyer.

A Charitable Remainder Trust (CRT) is worth modeling if you have charitable intent and a low-basis position. You contribute appreciated stock or business interest before the sale, the trust sells without immediate capital-gains recognition, and you take an income stream for a term of years plus a partial charitable deduction today. A Donor-Advised Fund (DAF) is the simpler version: bunch 2 to 5 years of expected charitable gifts into the closing year and take the itemized deduction against peak income. Starting in 2026, only the portion of an itemizer's charitable gifts above 0.5% of adjusted gross income counts, and annual percentage-of-income limits still apply, so model the deduction before you fund it.

The Takeaway

Where you already are in the process matters more than which technique looks best. Entity choice, Section 1202 eligibility, an installment note, a CRT funded with pre-sale interests: each has to be settled before a transaction is imminent, and afterward most are gone.

The owners who get hurt are usually the ones who did everything else right. They hired a strong mergers and acquisitions (M&A) attorney, negotiated hard on price, and treated tax as something the CPA would sort out at filing. By then the only open question is how the proceeds get reported.

How much runway your exit needs, and which structures are still open given where the deal stands, is worth a conversation before you take the business to market.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Consult with qualified professionals for guidance specific to your situation.