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Advanced Tax Strategies for Selling a Business
I break down how QSBS, a deferred sales trust and smart deal structure work together to cut the tax bill when you sell your business.
11 min read
Lenny Whiting
If you're planning to sell your business, tax strategies for selling a business aren't a nice to have.
They're the difference between keeping your money and handing a huge chunk of it to the IRS.
The tax bill is usually the single biggest number in the whole deal.
Bigger than the broker's fee.
Bigger than legal costs.
Bigger than anything else you'll negotiate.
Here's the good news.
Most of the ways to shrink that number have to be put in place before you sign a letter of intent, not after.
Wait until closing to think about taxes, and you've already given up your best options.
Here's a split I see constantly.
You've got a CPA who can tell you what you owe.
And you've got an attorney who can tell you how to structure the deal.
Rarely are they in the same room at the same time.
Tax preparation reacts to the past.
Tax planning looks forward.
And a business sale is the one event in an owner's life where forward looking planning is worth the most.
How do you avoid tax when selling a business?
Two levers move the most money.
The QSBS (Section 1202) exclusion, and a deferred sales trust.
Get those two right before you even look at anything smaller.
Everything else, deal structure, timing, entity cleanup, either supports one of those two strategies or shaves a smaller amount off the total.
In practice, "avoiding tax on the sale of a business" is really a menu.
Which items apply to you depends on how your business is organised and how far out you are from closing.
- QSBS / Section 1202. Can exclude some or all of the gain, but only for qualifying C corp stock.
- Deferred sales trust. Spreads the capital gain, and the tax on it, over years instead of triggering it all at closing.
- Deal structure. Asset sale versus stock sale changes who pays what, and at what rate.
- Timing and exit planning. The earlier you start, the more of the above is actually available to you.
I'll walk through each below, in the order they typically get evaluated.
What is QSBS (Section 1202), and how much of a business sale can it exclude from tax?
Qualified Small Business Stock, QSBS, under IRC Section 1202, lets an original shareholder in a qualifying domestic C corporation exclude some or all of the capital gain on that stock from federal tax when it's sold.
For stock issued before July 4, 2025 and held at least five years, the exclusion is 100% of the gain, up to the greater of $10 million or 10 times the shareholder's basis in the stock, as U.S. Bank explains.
The One Big Beautiful Bill Act changed the rules for stock issued after July 4, 2025.
Instead of an all or nothing five year clock, the exclusion now phases in.
50% at three years held, 75% at four years, and 100% at five years.
The dollar cap also rose, from $10 million to $15 million (indexed for inflation starting in 2027), and the corporation's gross assets ceiling to qualify as a "small business" moved from $50 million to $75 million, per Grant Thornton's analysis of the enhanced benefits.
The entity level rules didn't change.
It has to be a domestic C corporation, and at least 80% of its assets have to be used in an active qualifying trade or business.
That means the first question I ask isn't "do you qualify for QSBS."
It's "when was your stock issued," because the answer changes which set of rules applies to your sale.
What is a deferred sales trust, and how does it defer tax on a business sale?
A deferred sales trust, or DST, lets you transfer the business to an independent trust under an installment sale contract.
The trust then sells to the actual buyer and pays you back over a set schedule.
So capital gains tax is recognised only as those payments arrive, not all at once at closing.
The mechanism relies on IRC Section 453's installment sale rules, which defer tax on proceeds you haven't actually received yet.
As long as you never have direct control over the money, a concept the IRS calls "constructive receipt."
I'll be straight with you about the trade off.
Because DSTs operate in an area the IRS hasn't explicitly blessed, a poorly structured one can trigger the very tax bill it was meant to defer, as Phoenix Strategy Group lays out in its review of DST pros and cons.
Setup typically runs $5,000 to $15,000, plus ongoing trustee and management fees of roughly 0.5% to 1.5% of assets a year.
Real costs that need to pencil out against the tax deferred, especially on a smaller sale.
Sera Capital's explainer is a useful plain language walkthrough of the mechanics if you want the longer version.
A DST doesn't require QSBS eligibility.
It works for asset sales and stock sales, C corps, S corps, and pass throughs alike.
That's why it's usually the fallback strategy for owners whose stock doesn't qualify for Section 1202.
Should you structure the deal as an asset sale or a stock sale for tax purposes?
Buyers usually prefer asset sales.
Sellers usually prefer stock sales.
And the tax code is the reason for both preferences.
An asset sale gives the buyer a stepped up basis in what they bought.
New depreciation and amortisation schedules, and for equipment placed in service after January 19, 2025, potentially 100% bonus depreciation.
It also lets them leave most of your unknown liabilities behind, as Fraim, Cawley & Company's guide to the two structures explains.
You'll pull the other direction because an asset sale by a C corporation can trigger tax twice.
Once at the corporate level when the assets are sold, and again when the proceeds are distributed to shareholders.
A stock sale skips the corporate level tax entirely and lets you treat the whole transaction as a single capital gain.
Generally taxed at the lower long term capital gains rate instead of the mix of ordinary income and capital gains an asset sale produces.
Goodwill is where this gets specific.
Goodwill is a capital asset, so when it's sold it's taxed at long term capital gains rates, 0%, 15%, or 20% depending on income, rather than as ordinary income, according to a breakdown of how goodwill is taxed in a business sale.
There's an added wrinkle if you built the client relationships and reputation personally rather than through the corporate entity.
"Personal goodwill," when it can be substantiated, is taxed to you as the individual and can avoid the entity level tax layer altogether.
Often a meaningful difference in a C corp asset sale.
None of this gets decided in isolation.
Structure is usually the single most negotiated line item in a letter of intent, and price often moves to compensate for whichever side gives up its preferred structure.
How does exit planning reduce your tax bill before you sell?
Exit planning reduces your tax bill by giving every other strategy on this page enough runway to actually apply.
QSBS's five year clock and a DST's setup work don't happen in a weekend.
Recommendations on when to start vary with how much is at stake.
Some advisors put the minimum useful runway at 12 to 18 months before a sale, calling it "the minimum runway to make the decisions that actually affect the outcome" (Wiss).
Others frame the optimal window as five to ten years out, specifically to "strengthen cash flow, build management depth, align tax strategy, and prepare personal finances," per Martin Strategic Wealth.
Both are right, for different situations.
If your stock already qualifies for QSBS and was issued years ago, 12 to 18 months may be enough to layer a deal structure and a DST on top of an exclusion you already have.
If you're still deciding how to organise the company, five to ten years is closer to the truth.
The QSBS clock and any entity restructuring both need time to season before a sale closes.
How is tax planning different for business owners once a sale is on the table?
Once a sale is realistically on the table, tax planning stops being an annual exercise.
It becomes a single, mostly irreversible transaction to structure.
Ordinary year planning is about timing deductions, managing quarterly estimates, and keeping the books clean.
Sale year planning is about entity structure, the QSBS clock, deal terms, and, for owners with significant estates, coordinating gifting or trust strategies before the value of the business locks in at a sale price.
Estate tax mitigation belongs in this conversation for exactly that reason.
A business interest transferred before a sale is often valued very differently than the same interest sold for cash the following month.
This is also where having one advisor who is both the CPA and the attorney matters instead of being a nice to have.
The tax return, the entity documents, and the purchase agreement all have to agree with each other.
And if the IRS comes knocking on a DST or a QSBS position afterward, I don't pass you off.
I stand with you.
Which strategy fits your situation?
Most sales end up combining two or three of these rather than relying on one.
An exit planning runway to qualify for QSBS or set up a deferred sales trust, then a deal structure negotiated on top.
Here's the one page version of everything above.
| Strategy | What it does | Who it fits | Key requirement |
|---|---|---|---|
| QSBS / Section 1202 exclusion | Excludes some or all of the capital gain from federal tax | Original holders of qualifying C corp stock | 3 to 5 year hold (depending on issue date); $75M gross assets ceiling |
| Deferred sales trust | Spreads the capital gain, and the tax, over years instead of at closing | Any seller, any entity type, asset or stock sale | Independent trustee; no constructive receipt of proceeds |
| Deal structure (asset vs. stock) | Shifts who pays tax, at what rate, and when | Negotiated between buyer and seller | Usually reflected in the purchase price |
| Early exit planning | Buys the time the other three strategies need to qualify | Owners 1 to 10 years from a sale | Start before the QSBS clock or DST setup needs to run |
Can you sell a business and pay little or no capital gains tax?
For most owners, tax free is the exception, not the rule.
But combining these strategies can get the effective rate close to zero for the right stock, and meaningfully lower for everyone else.
QSBS is the closest thing to a true zero.
A qualifying five year holding period on the right C corp stock can exclude the entire gain, not just reduce it.
If you don't have QSBS eligible stock, or your gain exceeds the exclusion cap, a deferred sales trust and deal structure won't get you to zero.
But they change when and how the tax is paid, and that's often worth more than a marginal rate difference.
Here's the honest answer.
This only works if it's planned before the letter of intent is signed, not negotiated into the purchase agreement after the fact.
If you're weighing a sale in the next few years, book a tax strategy consultation with my team while there's still time to put these tax strategies for selling a business in place.
Reach us at 702-852-2577 or visit us at 10155 W. Twain Ave Ste 100, Las Vegas, NV 89147.
About the author: D. Lenny Whiting, Esq., CPA, MS is the Managing Partner of CPA Attorney, LLC.
I'm a licensed attorney (NV), CPA (NV), and Realtor (NV) with a B.S. in Accounting from Utah State, an M.S. in Accounting from UNLV, and a J.D. from BYU.
Most tax firms are either accounting based or law based.
This one is both, under one roof.
About Lenny Whiting
CPA Attorney Owner
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