Selling Your Business, Taxes & Tax Structures

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 756 words

The structure of your sale, not only its price, decides how much of the proceeds you keep after taxes, and most of the choices that matter have to be made before a buyer is at the table. Whether you sell assets or ownership, how your company is organized, how the price is divided among the things being sold and when you are paid all change the result. Your CPA and transaction attorney make the final calls; this article explains the questions so you can raise them early.

No article can tell you what your tax bill will be, because rates, rules and your own history all matter. What an owner can do is understand the moving parts and plan ahead.

Asset sale or stock sale

In an asset sale, the buyer purchases the company's assets, such as equipment, inventory, customer lists and goodwill, and usually leaves most liabilities behind. In a stock sale, or a sale of membership interests in an LLC, the buyer purchases the ownership itself, and the company carries on with its history, contracts and liabilities intact.

Buyers generally prefer asset purchases, because they can often deduct the cost of the assets over time and avoid inheriting old liabilities. Sellers, especially owners of C corporations, often prefer stock sales, because an asset sale by a C corporation can be taxed at the company level and again when the money reaches the owner. That tension is negotiated, and price can move to settle it. In some cases a tax election allows a purchase of stock to be treated as a purchase of assets for tax purposes, which can make a stock sale acceptable to the buyer; whether that is available depends on your entity, and your CPA decides. Our answer on selling assets or ownership interests covers the trade-offs.

Your entity type sets the starting point

Sole proprietorships, partnerships, LLCs, S corporations and C corporations are taxed differently when they are sold. Pass-through entities, such as most LLCs and S corporations, generally avoid the second layer of tax a C corporation faces in an asset sale. Some owners consider changing their company's tax status years before a sale. Whether that helps, and how long it takes to pay off, is a question for your CPA, and it is one of the best reasons to start planning early.

Allocation and timing: how and when the price is paid

In an asset sale, buyer and seller agree how the price is split among categories of assets, and the split matters because each is taxed differently. Gain on goodwill is often treated as capital gain, while amounts assigned to previously depreciated equipment, to inventory, or to a consulting agreement or non-compete with the owner may be taxed as ordinary income. The buyer's interests usually run the other way, so allocation belongs in the negotiation, not in the paperwork afterward.

Timing matters too. Being paid over time, through a seller note or an earnout, can allow part of the gain to be recognized as payments arrive rather than all in the year of sale, under installment-sale rules. That can help, but it leaves money at risk with the buyer. Taking everything at closing is simpler and safer but concentrates the tax in one year. Our answer on calculating after-tax proceeds shows how the pieces add up.

Questions to ask your CPA before going to market

Every term you agree, from the structure to the length of your consulting role, has a tax consequence, so settle the principles before signing a letter of intent. These questions are a good place to start.

• Will my sale be taxed mainly as capital gain or as ordinary income, and why?
• What is my tax basis in the company and in its assets?
• How does past depreciation affect the gain on equipment?
• What would an asset sale cost me compared with a stock sale?
• Would receiving part of the price over time reduce or defer tax?
• How should any consulting or non-compete payments be structured?

How we work with your tax advisors

MDR & Associates does not give tax advice, and no M&A advisor who is not your CPA should. What we do is bring the tax questions forward. We work alongside your own CPA and transaction attorney, share offers with them while terms are still open, and structure each deal around what you keep, not only the headline price. Owners who want to plan structure in the 12 to 24 months before a sale use our pre-exit consulting. To begin, contact us.

Where this fitsHow a business sale works, step by step →

Questions owners ask next

When should I involve my CPA in planning the sale?

Before you go to market, ideally a year or more ahead. Some choices, such as entity changes or cleaning up the balance sheet, take time to work. Your CPA should also review each letter of intent before you sign, because structure and allocation principles are much harder to change once a buyer has exclusivity.

Can a buyer and I simply agree to a stock sale to reduce my taxes?

You can propose it, but the buyer gives up tax benefits and takes on the company's history, so expect resistance or a lower price. Some deals settle on a stock sale with stronger protections for the buyer, others on an asset sale at a higher price. Compare the after-tax result of each with your CPA.