Selling a business has significant tax consequences. Planning ahead can maximize your after-tax proceeds and prevent unexpected liabilities.
Federal Capital Gains Tax
Profits from the sale of business assets held for more than one year are subject to long-term capital gains tax. Rates in 2025 range from 0% to 20% depending on income, with high earners also subject to the 3.8% Net Investment Income Tax. Short-term capital gains, for assets held less than a year, are taxed as ordinary income, potentially up to 37%.
Example: A business owner selling for $1 million with $500,000 in profit may owe $75,000–$100,000 in federal capital gains tax, depending on filing status and income bracket.
State Capital Gains Tax
States often impose their own capital gains taxes. Rates vary widely, and some states, like Missouri, have eliminated them entirely. State taxes can materially affect your net proceeds, making planning essential.
Investopedia: Missouri Capital Gains Tax Elimination
Deferring Taxes with a Deferred Sales Trust
A Deferred Sales Trust (DST) allows you to defer capital gains by transferring sale proceeds into a trust, which then invests and distributes funds according to a structured plan. This strategy provides flexibility in timing and potential growth, allowing you to defer taxes until you take distributions. DSTs are complex, so it’s critical to work with a tax professional experienced in trust structures.
Kahn Litwin: How to Avoid or Defer Capital Gains Tax
Corporate Tax Planning and Recent Changes
Recent tax legislation, including changes under the Tax Cuts and Jobs Act (TCJA) and subsequent adjustments, affects business owners considering C Corporations. Key points include:
- Flat Corporate Tax Rate: 21% for C Corporations, reducing overall tax on profits.
- Depreciation and Deductions: Accelerated depreciation allows business owners to deduct capital investments more quickly.
- Potential Sale Structuring Benefits: Proper planning can minimize double taxation on asset sales within C Corporations.
- IRS: Tax Cuts and Jobs Act Overview
- GT Law: 2025 Tax Act Key Changes
