At Johnston Pacific Commercial Real Estate, we know that selling your business is one of the most significant financial and emotional decisions you’ll ever make. It’s the result of years—often decades—of hard work, risk-taking, and dedication. But when the day comes to cash out, the last thing you want is to see a large portion of your proceeds eaten up by taxes.
The good news? With the right planning, you can significantly reduce your tax burden, reinvest more of your capital, and ensure your next chapter starts from a position of strength. Whether you’re retiring, transitioning into a new venture, or diversifying your investments, here are proven strategies to minimize taxes and maximize your net proceeds from a business sale.
1. Understand Your Tax Exposure Before You Sell
The first step in protecting your proceeds is knowing exactly what taxes you might face. The structure of your business (corporation, LLC, partnership, sole proprietorship) and how the deal is structured (asset sale vs. stock sale) will have a major impact on your tax bill.
Common taxes include:
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Federal Capital Gains Tax (15–20% depending on income)
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Depreciation Recapture Tax (25% on prior depreciation)
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State Taxes (in California, as high as 13.3%)
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Net Investment Income Tax (NIIT) (3.8% for certain income levels)
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Ordinary Income Tax (if parts of the sale are treated as income rather than capital gain)
At Johnston Pacific, we recommend working closely with your CPA well before your business hits the market. A thorough review of your tax exposure, business assets, and potential deal structures can reveal opportunities to lower your tax bill before a buyer even comes into the picture.
2. Structure the Deal Strategically
When selling a business, how the sale is structured can be just as important as the price you receive.
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Stock Sale: Often preferred by sellers, as it typically results in capital gains treatment and avoids double taxation for corporations.
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Asset Sale: Common for buyers, but can trigger ordinary income taxes on certain assets (like inventory or receivables) and depreciation recapture.
A well-negotiated deal can align buyer and seller interests while minimizing your overall tax hit. Johnston Pacific works with your legal and tax team to help position the transaction in a way that’s both marketable and tax-efficient.
3. Use an Installment Sale to Spread Out Gains
If you don’t need the full proceeds right away, an installment sale can spread capital gains over several years. This approach:
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Keeps you in a lower tax bracket annually
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Reduces exposure to the NIIT
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Allows you to earn interest on the deferred balance
We help our clients evaluate buyer creditworthiness and structure terms that protect your interests while creating meaningful tax benefits.
4. Leverage a 1031 Exchange for Business-Related Real Estate
If your business owns real estate, you may be able to defer taxes on that portion of the sale by using a 1031 Exchange to reinvest into another qualifying property. This strategy can allow you to unlock equity from your business sale while continuing to grow wealth in real estate—without taking the immediate tax hit.
Our team has deep expertise in executing 1031 Exchanges and can help you align your business and property sale timelines for maximum efficiency.
5. Consider Opportunity Zones for Long-Term Gains
For sellers looking to reinvest in new ventures or real estate, Qualified Opportunity Funds (QOFs) can be a way to defer and potentially eliminate taxes on part of your gains.
By rolling eligible gains into a QOF:
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You defer paying taxes until 2026
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Any appreciation in the new investment can be tax-free if held 10+ years
While not the right fit for everyone, Opportunity Zones can be a smart tool for those looking at long-term reinvestment strategies.
6. Explore Charitable and Estate Planning Strategies
If part of your motivation in selling is to fund charitable causes or pass wealth to the next generation, integrating tax-advantaged giving and estate planning can make a big difference.
Options include:
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Charitable Remainder Trusts (CRTs) for upfront tax deductions and lifetime income
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Gifting business interests prior to sale to reduce your taxable estate
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Donor-Advised Funds (DAFs) for flexible charitable giving
By aligning your sale strategy with your personal financial and legacy goals, you can keep more of your wealth while making a lasting impact.
The Johnston Pacific Advantage
While Johnston Pacific is best known for our expertise in commercial real estate, we also serve as strategic advisors for business owners whose transactions involve real estate components or complex asset sales. Our network of trusted CPAs, attorneys, and financial planners—combined with our deep transactional experience—ensures that your business sale is handled with the same precision and tax-conscious strategy we bring to every real estate deal.
Thinking about selling your business?
Before you take the first step, talk to Johnston Pacific about a confidential review of your options. We’ll help you identify the best structure, minimize taxes, and set you up for the strongest financial outcome in your next chapter.
