Essential Planning for Business Owners Prior to Selling a Business

Selling a business is one of the most important financial events in an owner’s life. A sale can also have significant tax implications.

The decisions you make before a business sale can directly impact how much you keep after taxes. But with proper tax planning before a business sale, you can reduce risk, improve deal value, and avoid costly surprises.

At Berluti McLaughlin & Kutchin LLP (BMK), our business law team guides business owners through business sale planning with a clear focus: maximizing after-tax proceeds while staying compliant with federal and Massachusetts law. We help protect your hard work and your interests.

You can reach our lawyers by calling 617-557-3030.

Are You Preparing to Sell Your Business in Massachusetts?

As a business owner, you know that how well you prepare often dictates how well you finish. The same goes for business sales. To reduce tax exposure, you may need to prepare in multiple ways, and our experienced business attorneys can help you develop the most effective plan for your needs.

The following steps can help you plan for a business sale and manage potential tax consequences.

Review Your Governing Documents and Relevant Laws

Before you sell a business interest, make sure the sale complies with the specific rules of your business and any applicable local, commonwealth, or federal laws.

Whether you run your business under a C corporation structure, a partnership, a limited liability company, or another business structure, you likely have governing documents that dictate what permissions you must receive to make a sale and how to make a sale.

These rules may affect the timing of the transaction and the included assets. They may also affect the distribution method and the taxation of sale proceeds.

Once you determine the appropriate structure for the sale, you should thoroughly review your business assets.

Take a Clear and Detailed Inventory of Assets for Sale

Before negotiating price or structure, complete an inventory of assets involved in the sale. Common assets may include:

Business interests (ownership shares or membership units),
Goodwill (brand reputation and customer relationships),
Stock,
Inventory,
Real property,
Equipment and machinery,
Leases and contracts, and
Intellectual property (e.g., patents, copyrights, and trademarks).

The inventory step is critical because the taxation of each asset category may be different, and the length of time you have held each asset can affect your liability. When selling a business or business interest for a lump sum, business owners must perform an asset allocation to allocate portions of the purchase price to each asset properly.

Know the Taxes That May Apply

When tax planning before a business sale, you must consider several layers of taxation, including:

Income taxes,
Capital gains taxes,
Investment taxes, and
Applicable Massachusetts taxes.

Understanding how these taxes may apply to your sale can help you decide how to structure the sale and which payment methods to accept.

How to Choose the Right Deal Structure?

When selling a business, tax strategies that can help include making informed decisions about the deal structure.

Your sale may take one of the following forms.

Asset Sale: Buyer Purchases Individual Assets

In an asset sale, your buyer may select specific assets and liabilities to acquire from you while you retain or wind up the remainder of the business. Depending on the assets you sell, the sale may be taxed as ordinary income (e.g., an inventory sale). In other situations, what you sell (e.g., patents or stock) may be a capital gain and subject to higher or lower tax rates. The tax treatment depends on the nature of the asset and the timing of the sale.

Stock Sale: Buyer Purchases Shares of the Company

Another option is the sale of ownership interests in your business, such as stock or membership units. Net gains from the sale of certain small-business stock may be subject to capital gains tax at the highest current rate of 28%. And the sale of other types of stock could result in capital gain taxes between 0% and 20%, depending on your taxable income.

You and the buyer should also consider how your business structure affects your tax obligations. For example, income from pass-through entities is taxed differently than income from C corporations, which are subject to corporate-level taxation and potential taxation at the shareholder level upon distribution.

What Type of Payment Will You Accept?

The form of payment also affects tax considerations in a business sale. Options include:

Cash,
Like-kind exchanges (in limited circumstances), and
Combination payments.

Depending on your unique circumstances, your capital gains tax rate may be higher or lower than your ordinary income tax rate. A cash transaction can heighten your exposure to capital gains taxes, while certain structured transactions may defer or reduce taxes.

If your sale qualifies, you may also use an installment sale to spread tax liability over multiple years.

Our attorneys can help you evaluate tax strategies for selling a business in the U.S. in 2026.

How Does Timing Play a Role in Good Business Sale Planning?

Timing can significantly affect your after-tax proceeds. For instance, if you hold an asset for more than a year, it may be treated as a long-term capital gain. The tax rate for a net capital gain (i.e., the amount left when subtracting a net short-term capital loss for the year from a greater long-term gain for the year) may be lower for you. Also, accepting the sale proceeds in installments might reduce your overall tax burden.

Because these strategies involve complex legal and tax considerations, consulting with experienced counsel can help you make informed decisions.

Contact Us Today

Selling a business is not just a transaction; it is a major financial and operational transition. At BMK, we work closely with business owners across Massachusetts to develop tax-efficient sale strategies and manage risk throughout the transaction process. Contact BMK today to schedule a consultation and discuss your business sale strategy.

Practicing Attorneys

John McLaughlin

Kerry Northup

FAQs

How Can I Reduce Taxes When Selling My Business?

You may reduce taxes by structuring the transaction strategically, timing the sale appropriately, and considering installment sales or other tax-deferral mechanisms.

What Taxes Apply When Selling a Business?

The main taxes may include ordinary income tax, capital gains tax, net investment income tax, and applicable Massachusetts taxes.

Legal References Used to Inform This Page

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