Title says it. I've got a small manufacturing biz, been running it 18 years. Got an offer that's real and I'm tempted. But my accountant is on vacation and I'm freaking out about the tax hit. Is it really 30-40%? Am I gonna lose half? Any real-world numbers from people who actually sold?
Taxes
How much will I lose to taxes if I sell my business this year?
Short answer: yes, probably somewhere in that range, but it depends entirely on your entity structure, basis, and how the deal is structured. You need to know if it's an asset sale or stock sale.
I broker deals. Sellers always under estimate the tax bill. Always. Get a CPA who specializes in exits, not not your neighbor who does 1040s.
Also, don't forget state taxes. Some states will bend you over on top of federal.
You're gonna lose a lot. I sold my HVAC company in 2021 and wrote a check to the IRS that made me physically ill. But I stilo cleared enough to retire, so whatever.
Asset sale = mostly ordinary income for inventory and equipment recapture. That's the killer. If you can get them to buy stock, it's capital gains, but they usually won't.
I'm an S-corp if that matters., And I think it's an asset sale. They want the machinery and the client list.
S-corp helps a little with the double taxation thing but you're still on the hook for depreciation recapture at ordinary rates for the equipment. The client list might be a capital asset though. This is why you pay a pro.
I heard about something called an installment sale where you spread the tax out. Might be worth asking about.
Installment sales are great until the buyer defaults three years in and you already paid tax on money you neve got. Ask me how I know.
Also don't forget thhe 3.8% net investment income tax if you're over the AGI threshold. That surprised me.
And the 199A QBI deduction. If you're an S-corp you might have been taking it. But it phases out on big gains. Talk to your guy when he's back.
Honestly, don't let the tax tail wag the dog. If you've got a good offer and you're ready to exit, pay the tax and move on. You can't take it with you.
But also, don't sell this year if you can push it to January. Then you get a whole extra year to plan and maybe use some losses or something.
Says the guy who's nevver sold a business. Pushing to January doesn't help if they're paying cash and you've already signed a LOI.
This is all giving me a headache. I'm gonna call a CPA tomorrow. Thanks everyone.
Good call. And don't sign anything until you talk to them. Seriously. Sellers remorse is a real thing when you see the tax bill. But you'll survive.