I'm selling my HVAC company after 22 years. Got an offer that's hard to refuse, but the tax hit is terrifying. I've heard about installment sales and opportunity zones but don't know where to start. Any real-world advice from folks who've been through this? Not looking for loopholes, just legitimate ways to keep more of what I built.
exit planning
selling my business how to avoid taxes
First thing: don't sign a letter of intent before talking to a tax advisor. The structure (asset sale vs stock sale) changes everything. If you're a C corp, you might get hit twice. S corp or LLC usually better for sellers. Get a good M&A attorney and CPA who've done deals your size.
Installment sale can spread the gain over years, but buyer has to agree. Also watch out for depreciation recapture—that part gets taxed as ordinary income no matter what. I sold my landscaping business last year and the recapture alone was a gut punch.
Thanks. I'm an S corp, so hopefully that helps. What about opportunity zones? My realtor mentioned them but it sounded too good to be true.
OZ funds are real but the rules are strict. You have 180 days to renivest the gain, and the fund has to be a QOF. Most of the tax benefit is deferral, not elimination, unless you hold 10+ years. For a business sale, it's worth exploring but don't expect to pay zero.
Also, don't forget state taxes. I moved to a no-income-tax state before closing and saved a bundle, but you have to establish residency properly. Talk to a lawyer about that—domicile rules can bite you.
One more thing: consider an ESOP if your employees are interested. You can sell to an ESOP and defer capital gains under section 1042 if you reinvest in qualified replacement property. It's complex but can be powerful. Not for everyone though
ESOP sounds like a lot of moving parts. We only have 12 employees. Is it even worth it at that size?
Probably not for 12 employees. The admin costs alone would eat the benefit. Honestly, your best bet is a straightforward asset sale with a good allocation between goodwill and equipment. Goodwill is capital gains, equipment is ordinary. Get your CPA to push for more goodwill allocation.
That's not always easy—buyers want more equipment allocation for depreciaton. It's a negotiation. But yes, worth fighting for.
Just make sure you have a tax advisor who's done at least a few deals in your industry. Generic CPAs miss stuff like the 1202 exclusion if you had QSBS. Probably not applicable to an S corp, but still—get someone who knows.