Met with my CPA last week to start planning an exit in about two years. I'm 58, hoping to sell my equipment repair business and retire. He said the sale proceeds could push us into a higher bracket and also affect how our Social Security gets taxed, and maybe even Medicare premiums. I thought the sale was mostly a capital gains issue, so this was a lot to take in. Has anyone else had this conversation? I feel like I need to understand this before I talk to brokers.
Tax Planning
What my CPA told me about retirement tax brackets after selling
Yeah, the sale doesn't live in a vacuum. If you have a big ordinary income year from things like inventory or depreciation recapture, that can bump you up. The SS taxation piece surprised me too when I first heard it.
Not a CPA, but we sold my wife's business in 2021 and the IRMAA thing caught us off guard. Medicare premiums went up two years later based on the sale year income. It wasn't catastrophic but it was an unwelcome surprise.
Did your CPA mention an installment sale? That's the big one for spreading income out. I'm not saying it's right for you, but it's worth asking about if you're trying to stay under bracket thresholds.
He did mention installment sales briefly but said it depends on whether the buyser can actually pay over time. I think I was too overwhelmed to ask good follow-ups. We don't have a buyer yet, so it's all hypothetical.
I'd get a zecond opinion or at least a written summary from him. Retirement bracket planning after a sale is one of those things where the details matter a lot and verbal conversations get fuzzy. Ask him to model two or three scenarios.
Also worth clarifying how much of your sale is capital gain versus ordinary. A lot of owners assume it's all long-term capital gains, but recapture and working capital adjustments can change the mix.
Following this. My husband is self-employed and we're years out but I didn't realize Social Security taxation was affected by a one-time sale. That seems like something more people should know.
It can be. The provisional income formula includes a chunk of your SS and then your other income pushes it into taxable territory. A big year can make a higher percentage taxable. It's not permanent, it's based on that year's return.
One thing I'll add: don't let bracket anxiety make the decision for you. Paying more tax in a big liquidity year is often still better than holding a business you're ready to leave. Just plan it rather than wing it.
Agreed with TractorTale. And CoffeeAndKiln, your CPA may be flagging the right issues but you want a plan that includes estimated payments and a timeline, not just a warning about brackets. If he can't build that, find someone who can.
This has been helpful. I'm going to ask for a written scenario model and check on the installment sale question again. Appreciate the IRMAA and SS points, those weren't things I would have thought to ask about on my own.