The Number on the Term Sheet Isn't What You Keep. Here's What Actually Determines Your Outcome.

We've seen it happen more times than you'd think. A business owner gets a great offer, gets excited, moves fast — and then gets to the closing table and realizes the tax bill is going to take a chunk they weren't expecting.

Not because anyone did anything wrong. Often, it's simply because the tax conversation didn't happen early enough.

The sale price is just the beginning

When you sell a business, what you actually walk away with depends on a few things that go beyond the headline number: These can include how the business is structured (LLC, S-Corp, C-Corp), whether it's an asset sale or a stock sale, how the purchase price is allocated between different types of assets, and what planning you did — or didn't do — before the sale.

Each of those variables can affect your tax bill. And in a meaningful transaction, the difference between a well-planned sale and a poorly structured one can be hundreds of thousands of dollars.

Asset sale vs. stock sale — and why it matters

This is one of the most consequential decisions in any business sale, and it's often driven by the buyer's preferences.

Buyers may prefer asset sales because they for a step up in tax basis on what they're buying. For you as the seller, an asset sale can create a less favorable tax situation — different parts of the sale may be taxed as ordinary income rather than capital gains.

Stock sales are generally better for sellers from a tax perspective, but not all buyers will agree to them, and they're not always available depending on your business structure.

Planning before the sale is where flexibility exists

The frustrating truth about business sale tax planning is that most of the strategies available to you require time. Approaches such as installment sales, charitable strategies, opportunity zone investments, or restructuring your entity before the sale — these aren't things you can do in the 30 days before closing and generally need to be considered well in advance of a transaction.

If a business owner comes to us with a signed letter of intent and 60 days to close, it may eliminate a lot of flexibility. We'll do what we can, but there are certain strategies you just can't implement at that stage that would have been available 12 months earlier.

If a sale is even on your radar — five years out, three years out, someday — it's worth starting the conversation now.

It's all connected

The tax outcome from a business sale doesn't happen in isolation. It can affect your retirement plan, your investment strategy, and your income picture for years after the sale. That's why this should be a coordinated conversation — your advisor, your CPA, and ideally your attorney, all looking at the same picture together.

If a sale might be in your future

The earlier you plan, the more options you may have. A good first step is understanding what the tax picture would actually look like — not as a scare tactic, but so you can make informed decisions with clear eyes.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.