Question 1

How do I avoid capital gains taxes when selling a business?

Accepted Answer

You may reduce or defer, but not necessarily avoid, capital-gains taxes through a qualified small business stock exclusion, eligible rollover, installment sale, or properly timed charitable contribution. Each has strict requirements; deferral is not elimination. Plan before the sale becomes binding, and have tax counsel evaluate your entity, ownership history, and transaction structure.

Question 2

How does a charitable remainder trust help when selling a business?

Accepted Answer

Before you sign a letter of intent to sell, you transfer part or all of your business to a CRT. The trust sells the assets without capital gains tax because it is a tax-exempt trust. The proceeds are invested, and you and your spouse receive income for life. Most owners choose a payout between seven and ten percent annually.

Question 3

When is it too late to plan?

Accepted Answer

The CRT has to be funded before you sign the letter of intent. After the letter of intent, this strategy is closed to you. If an offer is in hand, or one is coming, the time to look at this is now. Many other strategies, such as installment sales and qualified small business stock, also depend on how the deal is structured from the start.

Question 4

What is the qualified small business stock exclusion?

Accepted Answer

Section 1202 of the tax code lets owners of qualifying C corporation stock exclude some or all of the gain when they sell, up to set limits, if they meet holding period and other requirements. The company must have been a C corporation, below certain asset limits when the stock was issued, and in a qualifying business. S corporations and LLCs taxed as partnerships do not qualify.

Question 5

What is an installment sale?

Accepted Answer

In an installment sale, the buyer pays over several years instead of all at once, and you generally pay capital gains tax as each payment arrives. Spreading the gain can keep you in lower brackets. The tradeoff is that you depend on the buyer to keep paying, so the terms, security and buyer's strength matter.

Question 6

When I recommend it, and when I don't

Accepted Answer

I am not your tax advisor. Talk to your CPA or estate attorney about whether a CRT fits your situation. What I can do is help you think through the post-sale side: how the proceeds inside the CRT are invested, how the income is structured, and how alternative investments inside the trust can help generate the payout most clients want.

How do I avoid capital gains taxes when selling a business?