For many business owners, taxes are one of the biggest unknowns when thinking about exiting their business. Questions like How much will I owe? or What can I do to reduce taxes? often come up — sometimes too late in the process to make a meaningful difference.
The reality is this: the most effective tax planning happens years before an exit, not months before a transaction. With the right preparation, business owners can protect more of the value they’ve built and avoid costly last-minute surprises.
Here are some key tax planning considerations to understand well before you exit.
The way your business is structured can have a major impact on how exit proceeds are taxed.
Each structure has different tax consequences when ownership changes or a sale occurs. For example, some structures may lead to double taxation, while others may offer more favorable treatment depending on how the transaction is structured.
Changing an entity structure close to an exit can limit options or create unintended tax consequences. Reviewing structure early allows time to evaluate alternatives and plan strategically.
Not all income from a business sale is taxed the same way.
Some proceeds may qualify for capital gains treatment, while others may be taxed as ordinary income, depending on:
The type of assets being sold
How the purchase price is allocated
The structure of the transaction
Capital gains are often taxed at lower rates than ordinary income, which makes the distinction critical.
Without planning, more of the sale proceeds may be taxed at higher ordinary income rates — reducing your net after-tax outcome.
The timing of a transaction can significantly affect the tax bill.
Timing considerations may include:
Aligning a sale with lower-income years
Monitoring changes in tax law
Coordinating exit timing with retirement or other life events
A well-timed exit can reduce taxes and improve cash flow — sometimes without changing the transaction itself.
Your business exit and your personal retirement plan are closely connected — and should be planned together.
Key questions to consider:
Are retirement plans optimized before the sale?
Are contribution opportunities being fully utilized?
How will sale proceeds support long-term income needs?
Retirement planning can offer tax-advantaged ways to build wealth before an exit and provide stability afterward.
Coordinating business and personal planning helps ensure the exit supports your lifestyle goals, not just the transaction.
Tax planning is most effective when it’s proactive — not reactive. Starting early allows business owners to:
Evaluate multiple exit paths
Adjust structure and timing thoughtfully
Coordinate tax, financial and retirement planning
Avoid rushed decisions under pressure
Even modest planning done well in advance can lead to meaningful tax savings.
You’ve spent years building your business. Tax planning helps ensure you keep more of the value you’ve created — and transition on your own terms.
If exiting your business is part of your future, now is the time to start thinking strategically about taxes. The earlier the conversation begins, the more options you’ll have when it matters most.
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