How much tax do you pay when you sell your business?

When you sell your business, the IRS gets a share of the gain. How much depends on how the sale is structured, how long you’ve owned the business, and what kind of entity you operate. For most owners, the total tax is somewhere between 20% and 40% of the gain, which makes getting this right one of the most important financial decisions you’ll ever make.

The two types of sales

Almost every business sale falls into one of two structures, and each is taxed differently.

Asset sale: The buyer purchases the individual assets of your business, equipment, inventory, customer lists, goodwill, real estate if applicable, rather than the company itself. Each type of asset is taxed at a different rate. Most small business sales are structured this way because buyers prefer it (they get to step up their cost basis on the assets).

Stock sale: The buyer purchases your ownership shares in the company directly. You pay capital gains tax on the difference between what you receive and your original cost basis in the shares. Sellers generally prefer this structure because it’s simpler and often results in lower total taxes.

How asset sales are taxed

In an asset sale, the purchase price is allocated among different categories of assets. Each category is taxed differently:

Asset Category	Tax Treatment
Tangible assets (equipment, vehicles)	Ordinary income if depreciated below book value; capital gains on appreciation
Inventory	Ordinary income rates
Real estate	Capital gains, potentially with depreciation recapture
Goodwill	Long-term capital gains (favorable rate)
Non-compete agreement	Ordinary income
Customer lists, trade names	Capital gains or ordinary income depending on structure

The allocation of the purchase price among these categories is negotiated between buyer and seller. Buyers want more in ordinary income categories (deductible to them); sellers want more in capital gains categories (taxed at lower rates). This negotiation matters.

Capital gains rates in 2026

If you’ve owned your business for more than one year, the gain on qualifying assets is taxed at long-term capital gains rates:

• 0% if your taxable income is below roughly $89,000 (single) or $178,000 (married)
• 15% for most owners
• 20% for high earners (roughly above $553,000 single, $624,000 married)

In addition to federal capital gains tax, most states add their own tax on top, ranging from 0% (Texas, Florida) to 13.3% (California).

Strategies that can reduce the tax bill

A good CPA who works with business owners can help you explore several strategies before you sell:

Installment sale: You receive the purchase price in payments over multiple years instead of all at once. This spreads your taxable income across those years and may keep you in a lower tax bracket. It’s one of the simplest ways to defer taxes, but it means you’re acting as a lender and taking on some risk.

Qualified Opportunity Zone (QOZ) investment: You can defer and potentially reduce capital gains tax by reinvesting your gains into a Qualified Opportunity Zone fund within 180 days of the sale.

Charitable Remainder Trust (CRT): You donate appreciated business interests to a trust, which sells the business tax-free and pays you income for the rest of your life. The remainder goes to charity. Complex but powerful for owners with philanthropic goals.

Entity structure changes: If your business is a C-corporation, there may be opportunities to restructure before a sale to improve tax treatment. This requires years of advance planning.

What you need to do right now

If you’re thinking about selling in the next few years:

1. Talk to a CPA now. Not when you have a buyer, now. Many of the best strategies require 2 to 3 years of lead time.
2. Get your financials in order. Clean, well-documented books make the sale process smoother and reduce the risk of a buyer renegotiating after due diligence.
3. Understand your cost basis. Your original investment in the business, plus any reinvested earnings, affects how much of the sale proceeds are considered a gain.
4. Plan for the state tax. Don’t forget your state income tax. In some states, the state tax is larger than the federal bill.

The tax planning doesn’t slow down the sale process, it just requires starting earlier than most owners think.

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Common questions owners ask

What tax rate applies when I sell my business?

It depends on how the sale is structured and what you're selling. If you sell stock in a C-corporation or S-corporation that you've owned for more than a year, long-term capital gains rates apply, currently 0%, 15%, or 20% depending on your income. If the sale is structured as an asset sale (which is common), different parts of the purchase price may be taxed at different rates, including ordinary income rates on some items.

What's the difference between a stock sale and an asset sale?

In a stock sale, the buyer purchases your shares of the company. You pay capital gains tax on the difference between what you receive and your original cost basis. In an asset sale, the buyer purchases specific assets of the business. Each asset category is taxed differently, some at capital gains rates, some at ordinary income rates. Most small business sales are structured as asset sales because buyers prefer them.

Can I spread out the tax hit by doing seller financing?

Yes. An installment sale, where you receive the purchase price in payments over multiple years, lets you spread the taxable gain across those years. This can keep you in a lower tax bracket and defer when you owe the tax. It's a common strategy, but it also means you're taking on risk as a lender. Your CPA and attorney should both be involved in this decision.

When should I start tax planning before selling?

Ideally 2 to 3 years before you plan to sell. Certain tax strategies, like qualified small business stock (QSBS) exclusions, installment sales, or charitable remainder trusts, have timing requirements or need to be set up well in advance. Waiting until you have a buyer in hand limits your options significantly.