Business Exit Planning

Potential taxes can greatly affect the proceeds from selling your business. One way to reduce the tax burden is to perform an installment sale, especially if the buyer doesn't have enough cash or will pay a contingent amount based on the company's performance. Installment sales spread the gain over the contract's duration, which may help avoid triggering the Net Investment Income Tax or short-term capital gains. However, there are drawbacks, such as the recapture of depreciation in the year of sale or higher tax rates in future years.

If you're gifting your business to family members during your lifetime, you'll need to file a gift-tax return. You can choose to pay an immediate gift tax or use your lifetime gift and estatetax exemption (currently $15 million). Unless the value of your business exceeds this exemption, you typically won't owe any tax on the gift.

GIFT-TAX EXCLUSION

You have another option if you plan to eventually pass your business to a family successor, but the business's value exceeds the exemption. You can use the annual gift-tax exclusion ($19,000 in 2026) to gradually give an ownership interest each year without incurring taxes.

SMART MOVE: Consider the entire picture when planning to sell your business. Tax consequences are only one of many important considerations.