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Exit Strategies for Selling Your Business

Selling a business marks a significant milestone for any entrepreneur, representing years or even decades of persistent effort, passion, and resilience. However, navigating the transition in a manner that maximizes profits while minimizing tax liabilities can be as challenging as building the business itself.
Crafting an exit strategy requires foresight and ample time, possibly even years. In this article, we’ll offer a financial advisor’s and CPA’s perspective on the process, outlining the steps you should take well in advance and how to manage the proceeds in a tax-efficient manner.

The Years Leading Up

Establish a Retirement Plan

Establishing a retirement plan, like a 401(k), allows you to reduce your business’s taxable income through a tax-deductible company match if you offer one. Less tangibly, a retirement plan can enhance your company’s perceived worth, translating into real-world gains by lending credibility and attracting and retaining skilled workers.
Alternatively, you might consider selling your business to your employees through an Employee Stock Ownership Plan (ESOP). Utilizing a Section 1042 rollover as per the Internal Revenue Code, this method lets you defer the capital gains tax on the sale proceeds by rolling them into an investment account and purchasing Qualified Replacement Property (QRP) such as common stocks and convertible bonds. Long-term capital gains are recognized upon the liquidation of QRP securities after a required minimal holding period.

Classify Your Assets

Initiate the valuation process by assessing the items your business owns. The IRS categorizes and taxes each item based on its classification, and how you classify your assets can have significant implications for your tax liability.
When selling these assets, it’s often advisable to assign most of the valuation to the asset class that will be taxed as capital gains rather than ordinary income. Capital gains typically refer to profits from the sale of an investment or property held for more than a year, and these are usually taxed at a lower rate than ordinary income.
However, the challenge lies in balancing the tax benefits for you with the potential profit for the buyer. This complexity means you’ll need to begin negotiations early to arrive at a mutually beneficial outcome.
It is essential to consult with both a tax professional and business valuation expert to ensure that your asset classification aligns with current tax laws and your unique business situation, as improper classification could lead to unexpected tax consequences.

Shift Your Tax Exposure

If you live in a state with significant taxes, you might consider establishing an Incomplete Gift Non-Grantor (ING) trust. This approach can redirect your tax obligation from your current high-tax state to one with little or no income tax, such as Nevada or Delaware. Proactive planning, typically at least two years before selling a business, is essential to effectively utilize this advantage. By taking these steps, you may be able to eliminate the state capital gains tax that the deal would otherwise incur.

Create a CRUT (Charitable Remainder Unitrust)

Consider minimizing your tax liability by setting up and transferring shares of your business into a CRUT. This trust can make yearly payments to a designated beneficiary (such as yourself). At the conclusion of the trust’s term, a minimum of 10% of the original trust value will be donated to a charitable organization.
By selling the business, the proceeds from the company’s sale can be received in installments, potentially spread over multiple years, to help you stay in a lower tax bracket. Capital gains taxes are circumvented because the sale was conducted by a charitable entity – the trust – rather than you personally.
However, establishing a CRUT is complex and necessitates consultation with attorneys and accountants experienced in this area.


Congratulations on successfully selling your business and achieving a rewarding return on your investment! There are still opportunities, however, to maximize your return.

Consider Installments

Rather than accepting a lump sum payment, which could result in a significant tax liability, you may wish to structure the payments across multiple years. Doing so could help you stay within a lower tax bracket, thereby reducing the overall tax burden.

Invest in a Qualified Small Business

You might find significant tax savings by excluding capital gains on Qualified Small Business Stock (QSBS). If you’re considering selling your company before reaching the required five-year holding period, there’s still a way to navigate this situation. By reinvesting your profits into QSBS within a 60-day window, you can qualify for a tax deferral. You then pay taxes on your original capital gains only upon selling your new Qualified Small Business Stock.

Invest in an Opportunity Zone

Under the Tax Cut and Jobs Act (TCJA) of 2017, “opportunity zones” were introduced, designating economically distressed areas for investment. You can defer your capital gains taxes until December 31st, 2026, by redirecting your profits into one of these opportunity zones. This option offers a unique way to both potentially grow your investment and fulfill social responsibilities by contributing to the revitalization of struggling communities.

Adhere to Your Plan

Receiving a substantial lump sum can be both thrilling and overwhelming. Heading straight to the luxury car dealership or booking an extravagant vacation may be tempting. While there’s no harm in indulging, it’s wise to pause and reflect on your long-term goals first. If you have a financial plan, adhere to it. That plan is a roadmap to keep you disciplined and aligned with your long-term success.
It’s important to note that executing these strategies cannot be handled with a DIY approach. The complexities and legal nuances involved in asset management, capital gains deferral, and other financial planning activities require expert knowledge and careful handling.
So if you’re thinking of selling your business or have already started the process, now is the time to reach out to qualified experts who can not only help you maximize your returns and minimize taxes but also prevent you from inadvertently running afoul of the law.

In Conclusion

Every business and its sale are unique, and the strategies mentioned in this article merely scratch the surface. In fact, you may find that many of these strategies may not apply to your situation, and there could be opportunities not mentioned here. That’s why seeking professional advice is vital to ensure you get the most out of selling your business.
Our team, consisting of dual-qualified financial advisors and CPAs, has guided numerous entrepreneurs through the complicated process of selling their businesses and efficiently utilizing the profits. If you’re considering selling or are already in the process, don’t hesitate to contact us.

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

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  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.

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