Most business sales are taxed as long-term capital gains for the seller. Federal capital gains rates of 15 or 20 percent apply, plus state capital gains tax (which varies from 0 to 13.3 percent), plus the Net Investment Income Tax of 3.8 percent on high-income earners. The exact split depends on entity type (S-corp, LLC, C-corp), how the deal is structured (asset sale vs. stock sale), and where you live in the year of sale.

For long-term holdings (over one year), the federal rate is typically 20 percent for high-income sellers. The 15 percent rate applies to lower income brackets. Add 3.8 percent NIIT for high earners. Add state capital gains tax based on your residency at the time of sale. Combined effective federal rates often land between 23.8 percent and 25 percent, before state tax.

NIIT is a 3.8 percent surtax on net investment income for individuals earning over $200,000 (or $250,000 for married filing jointly). Business sale gains are included unless the seller qualifies for the active business exemption, which requires material participation under IRS rules. Most passive owners pay NIIT. Active operators may not.

Yes, in most cases. State capital gains tax is paid in your state of residency for the tax year of the sale, regardless of where the business operated. Eight states have no state capital gains tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. California has the highest at 13.3 percent. Establishing residency in a no-tax state before the sale year is one of the largest legal levers available.

Qualified Small Business Stock under Section 1202 allows certain C-corp shareholders to exclude up to $10 million (or 10x the original cost basis, whichever is greater) of capital gains from federal tax. The stock must be held for five years. The company must qualify as a small business at issuance. With proper trust planning, the exclusion can be stacked across family members, multiplying the savings. QSBS planning has to happen years before the sale, not after.

For sellers, stock sales typically result in lower taxes (single layer of capital gains). For buyers, asset sales are preferred (step-up in basis, faster depreciation). Most deals end up as asset sales because buyers have more leverage. Sellers can often negotiate purchase price gross-ups or 338(h)(10) elections to offset the additional tax burden. This is one of the most consequential negotiations in any exit.

The biggest moves require runway. QSBS qualification (5-year hold), charitable remainder trusts (must fund pre-LOI), state residency changes (must be established before the sale year), and entity restructuring all require months or years of planning. Once a buyer is identified, most of these doors close. The single highest-leverage decision is when you start planning, not what you choose.

36 months out is ideal. 24 months works for most strategies. 12 months is enough for some structural moves. Less than 12 months from sale, you're optimizing inside the deal, not pre-positioning for it. The biggest dollar savings come from changes made years ahead.

This tool gives a directional estimate based on standard pass-through entity treatment, federal long-term capital gains rates, state capital gains rates, and NIIT. It does not account for QSBS, installment sales, earnouts, rollover equity, or state residency planning. C-corp sellers face different (often worse) treatment due to potential double taxation. For your specific situation, work with a CPA and a financial advisor specialized in exits.

Moment Private Wealth, a fee-only multi-family office for entrepreneurs and athletes, built this tool. Luke Turner, CFP, CEPA (Certified Exit Planning Advisor), leads our entrepreneur division. Moment works with founders 12 to 36 months from a sale, alongside their CPAs and attorneys, to coordinate tax, estate, investments, and deal team strategy.