Exit planning
What taxes should I plan for before selling a privately held company?
The tax concepts that shape what you keep from a sale, which choices must be made early, and which professional decides each one.
By Michael D. Rubin, CEO & Founder · September 2026 · 973 words
Plan for federal tax on your gain, the choice between an asset sale and a stock sale, how the price is allocated among the company's assets, and the timing of any money paid after closing. Those four decisions usually shape what you keep more than the headline price does. Your CPA and transaction attorney decide the details. Your job is to raise the questions early enough that there are still choices to make. Tax is also one reason two offers at the same price can leave you with very different amounts.
Your gain, and why structure changes how it is taxed
Your taxable gain is, broadly, what you receive minus your tax basis, which is roughly what you invested in the company or its assets, adjusted over the years. Some parts of a sale can be taxed as capital gain and other parts as ordinary income, and ordinary income is generally taxed more heavily. Which parts land where depends on how the deal is structured, so structure is the first question to settle. Your CPA can tell you roughly what your basis is today, which is a useful number to know before any buyer conversation.
A practical step: ask your CPA for an estimate of after-tax proceeds under two or three likely structures, using a realistic price range. Seeing the difference in dollars, before you negotiate, tells you which terms are worth fighting for and which are not. Update the estimate when real offers arrive, since each buyer's structure will differ.
Asset sale or stock sale
In an asset sale, the buyer purchases the company's equipment, inventory, customer relationships and goodwill, and your entity keeps whatever is left, including most old liabilities. Buyers usually prefer this, because they get a fresh tax basis to depreciate and leave history behind. In a stock sale, or a sale of membership interests in an LLC, the buyer purchases your ownership and the company transfers as a whole. Sellers often prefer this, because more of the gain tends to be treated as capital gain.
Your entity type matters a great deal. An owner of a C corporation that sells its assets can face tax at the corporate level and again when the proceeds are distributed. S corporations and LLCs are generally taxed once, at the owner level. If your company is a C corporation, talk to your CPA well before a sale.
In practice, many sales of smaller private companies are structured as asset sales, and the negotiation then shifts to how the price is allocated. That is why the allocation line in the table below can matter as much as the headline price.
The terms to go through with your CPA
| Issue | What it means | Who decides |
|---|---|---|
| Purchase price allocation | How the price is split among equipment, inventory, goodwill, a non-compete and any consulting agreement; each piece can be taxed differently | Negotiated with the buyer; modeled by your CPA |
| Depreciation recapture | Equipment you have depreciated may be taxed as ordinary income when sold above its depreciated value | Your CPA |
| Installment sale | Seller financing can spread the tax on part of the gain over the years you are paid | Your CPA and attorney |
| Earnout | Part of the price paid later if targets are met; timing and treatment need planning | Your attorney and CPA |
| Consulting or employment pay | Pay for staying after closing is usually ordinary income, not sale price | Negotiated; modeled by your CPA |
| Estate and gifting | Moving shares to family members or trusts before a sale can change who pays the tax | Estate attorney and CPA, well in advance |
State and local considerations
Texas does not have a personal income tax, which simplifies part of the picture for owners who live here. Federal tax still applies, the company's Texas franchise tax filings should be current and will be reviewed by the buyer, and owners who live in another state, or companies with operations in other states, may face those states' rules. Ask your CPA to map where the gain will be taxed before you sign a letter of intent. If you plan to move before selling, raise that too, because where you live when the sale closes can matter.
Why the timing of the planning matters
Much of the useful planning has to happen before a buyer is involved. Converting an entity, restructuring ownership, separating real estate from the operating company or moving shares into a trust are steps that generally need time and cannot be done credibly in the weeks before closing. Starting 12 to 24 months ahead gives your advisors room to work.
The same applies to estate planning. If you want part of the value to pass to children or a trust, your estate attorney will usually want that structure in place well before a buyer is involved, because the options narrow once a price has been agreed.
It also avoids a common late surprise: accepting a letter of intent at a price that looked good, then learning what that structure means after tax. When offers arrive, compare them on what you keep, not on the headline number. Our guide to comparing offers shows how.
What MDR & Associates does, and what your CPA does
MDR & Associates is not a tax adviser and does not give tax opinions. What we do is bring the tax questions up at the right moment. We ask about your entity type and goals at the discovery meeting, negotiate structure and allocation with buyers in the letter of intent with your CPA's input, and work alongside your own CPA and transaction attorney through closing. Bring your CPA in before the first letter of intent, not after. Our pre-exit consulting gives that planning the 12 to 24 months it needs, and SBA, conventional and seller-financed structures can be arranged when they suit your plan. To start, contact us.
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