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

Most of the tax-planning moves that save six or seven figures on a business exit need twelve months of runway, not twelve days. 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. Buyers of C-corps typically want a stock sale; buyers of pass-through businesses often push for an asset deal, which 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 qualifies under Section 1202 (Qualified Small Business Stock), the first $10 million of gain, or ten times your basis, can be excluded from federal tax entirely, provided you held the shares more than five years and the company met the original issuance and active-business tests. 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 as ordinary income, not capital gains. 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 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 has real value. 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 two to five years of expected charitable gifts into the closing year and take the full itemized deduction against peak income.

The Takeaway

The fact that changes your answer is where you already are in the process, not 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 simply gone.

The owners who get hurt are usually the ones who did everything else right. They hired a strong 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, not how many of them stay.

How much runway your exit actually 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.