Keeping More of What You Built: How Deal Structure Affects Your Taxes

After decades of work, the sale of your business may be the largest financial event of your life. The price matters. But what you keep after taxes matters more, and that depends heavily on how the sale is structured.

Two sales at the same price can produce very different after-tax results. Planning ahead, with the right advisors and a buyer willing to be flexible, can make a real difference.

How a business sale is taxed

When you sell a business you've owned for more than a year, much of your profit is usually taxed as a long-term capital gain. For 2026, federal long-term capital gains rates are 0%, 15%, or 20%, depending on your taxable income. Some sellers may also owe the 3.8% net investment income tax, depending on their income and how involved they were in the business.

Not every dollar of a sale is treated as a capital gain, though. Some parts are taxed as ordinary income, at rates that can be much higher. Which parts fall where depends largely on the structure of the deal.

State taxes apply too. Arizona, for example, taxes income at a flat 2.5% rate and lets taxpayers subtract a portion of qualifying long-term capital gains.

Asset sale or stock sale

This is usually the biggest structural decision.

In a stock sale (or a sale of LLC membership interests), you sell your ownership in the company itself. Sellers often prefer this, because the gain is generally treated as a capital gain.

In an asset sale, the company sells its individual assets, such as equipment, vehicles, customer lists, and goodwill. Buyers often prefer this for tax and liability reasons. For sellers, the result depends on how the price is divided among those assets:

• Goodwill and other intangible value is generally taxed as a capital gain
• Equipment and vehicles may trigger depreciation recapture, which is taxed as ordinary income
• Inventory is taxed as ordinary income
• Payments for a non-compete agreement or consulting are generally ordinary income

Your company's tax status matters as well. For example, owners of a C corporation can face two layers of tax in an asset sale, while S corporations and LLCs usually pass gains through to owners once.

The purchase price allocation

In an asset sale, buyer and seller agree on how the price is allocated across asset categories, and both report that allocation to the IRS. Because different categories are taxed differently, the allocation can shift a meaningful amount between capital gain and ordinary income. This is one of the most important items to negotiate with your CPA's guidance, and it should be settled before you sign.

Spreading the gain over time

When part of the price is paid over time through a seller note, you may be able to report much of the gain as the payments arrive, rather than all in the year of sale. This is known as the installment method. Spreading gain across several years can sometimes keep more of it in lower tax brackets.

There are limits. Depreciation recapture is generally taxed in the year of sale, even if you haven't been paid yet. Some assets, like inventory, don't qualify. And deferring payment means taking on the risk that the buyer pays as agreed.

Other tools to discuss with your advisors

Depending on your situation, your CPA or financial planner may suggest:

• Equity rollover. Keeping a stake in the business, which can sometimes be structured so tax on that portion is deferred until it's sold later.
• Qualified small business stock (Section 1202). Owners of certain C corporations who meet strict requirements may exclude some or all of their gain. Recent law changes expanded this benefit for stock issued after July 4, 2025.
• Charitable planning. Tools like charitable remainder trusts can reduce taxes for owners with charitable goals, but they generally must be set up before a sale is agreed.
• Opportunity zone investments. Reinvesting gains in a qualified opportunity fund can defer tax under certain conditions. The rules have recently changed, so timing matters.
• Timing and income planning. When you close, and what other income you have that year, can affect your rate.

Each of these has detailed requirements and trade-offs. None of them work for everyone, and several must be in place well before closing.

How Legacy Lion Reserve works with you

We know that a fair price is only part of a good outcome. When we buy a business, we're flexible on deal structure and work alongside your CPA, attorney, and financial planner to find terms that fit your tax situation and goals. That can include:

• Discussing stock versus asset structure early, before terms are set
• Agreeing on a purchase price allocation that reflects the real value of the business
• Offering seller financing or rollover equity where it helps your planning
• Being flexible on timing, including when the sale closes
• Explaining every part of our offer in plain language, so your advisors can model your after-tax results

We don't replace your tax advisor. We're a buyer who's willing to structure a deal around your plan, not just ours.

Start planning before you sell

The best tax planning happens months or years before a sale, not after an offer is signed. If you're considering selling in the next few years, now is the time to bring your CPA into the conversation, and we're glad to talk with you both.

This article is for general education and is not tax, legal, or financial advice. Tax rules change and depend on your circumstances. Consult a qualified CPA and attorney before making decisions about the sale of your business.