Tax Implications of Selling Your Business

Tax Implications of Selling Your Business

Asset Sale vs. Stock Sale

Asset Sale

• Buyer acquires individual assets (equipment, inventory, goodwill)
• Seller may recognize ordinary income on some assets
• Goodwill and capital assets taxed at capital gains rates
• Buyer gets a stepped-up basis (prefers this)

Stock Sale

• Buyer acquires ownership interest
• Seller generally pays long-term capital gains rates on the entire gain
• Simpler for the seller
• Buyer inherits the company's tax history

Installment Sale

• Spread gain recognition over multiple years
• Reduces tax in the year of sale
• Must report a prorated portion of gain each year
• Interest income on deferred payments is also taxable

Qualified Small Business Stock (QSBS)

If your business qualifies as QSBS under Section 1202:

• Exclude up to 100% of capital gains (up to $10 million or 10x basis)
• Must have held stock for more than 5 years

Section 1244 Stock Losses

If the sale results in a loss, Section 1244 stock losses are treated as ordinary losses (up to $50,000/$100,000) rather than capital losses.

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Planning to sell your business? Engage our tax team at least 1–2 years before the sale for optimal planning.