Why Taxes Are the Most Overlooked Threat to Your Exit Outcome

Welcome back to another edition of The Wise Exit newsletter. This week, we’re covering: 

• Why taxes are the most overlooked threat to your exit outcome

• The key tax types every founder needs to understand before they sell

• 3 things you can do this week to protect more of what you've built

Let’s get to it.

💡 This Week’s Big Idea

Why Taxes Are the Most Overlooked Threat to Your Exit Outcome

I've sat across from a lot of founders who've been building their businesses for 10, 15, 20+ years. They get a valuation that they're excited about, shake hands with the buyer, start thinking about what comes next…

Then they find out what they actually get to keep after Uncle Sam takes his share.

For most founders, taxes on a business sale are the single biggest surprise in the entire process.

But the good news is, there’s a lot you can do to get ahead of it, and even reduce your tax bill, if you start early and know what you’re walking into.

Here are a few things every founder should know about how their business is taxed before they go to market:

1. How long you've owned the business matters

If you've held your business for more than 12 months, your gains are taxed at the long-term capital gains rate (typically 15% or 20%). If you haven't, you're looking at ordinary income tax rates, which can go as high as 37%. That difference can be worth millions depending on the size of your deal. That’s why I’d always recommend holding longer if you can.

2. Asset sales and stock sales are taxed differently

In an asset sale, the IRS treats each asset as its own transaction. Some things, like goodwill, get taxed at favorable long-term capital gains rates. Others, like inventory or receivables, get taxed as ordinary income. How you structure your deal has a direct impact on your tax bill, and buyers typically prefer asset sales for their own tax reasons. Know the trade-offs before you get to the negotiating table.

3. Where you live affects what you owe

While states like California and Massachusetts add a meaningful state capital gains tax on top of federal, other states have no capital gains tax at all. It's worth knowing your state’s tax laws before you sign anything.

4. There are legal strategies to reduce what you owe

From installment sales that spread your tax liability over multiple years to Qualified Opportunity Zone investments that let you defer and potentially eliminate gains, there are several tools available for you. But they do require preparing in advance.

The bottom line is, the number on your offer letter isn’t the number you walk away with. But founders who start thinking about these things early on consistently keep more of what they've earned and, ultimately, walk away happiest with their deals.

Reply to this email or reach out to us here if you want help walking through any of these or identifying where your business stands.

❓ 5 Key Questions to Ask Yourself This Week

1️⃣ Do I know what type of sale would be more advantageous for my specific business and situation?

2️⃣ Have I owned my business long enough to qualify for long-term capital gains treatment, and if not, does my timeline account for that?

3️⃣ Am I currently running personal expenses through my business in ways that could create tax complications at close?

4️⃣ Do I have a tax advisor on my team who has specific experience with M&A transactions, not just annual filings?

5️⃣ Have I explored any tax deferral or reduction strategies with a qualified advisor?

📋 3 Action Items for This Week

☑️ Get a preliminary read on your deal structure: Talk to your CPA or M&A Advisor about whether your business would likely be sold as an asset sale or stock sale, and what the tax implications are for each.

☑️ Review how your business is set up structurally: Whether it’s an S corp, C corp, or LLC, your business entity type affects your tax exposure at exit in ways that can still be addressed now if you have enough runway.

☑️ Add a transaction-experienced tax advisor to your exit team: Your regular accountant is great for what they do. But this is a different conversation. Find someone who's been through M&A deals before and can help you model out scenarios. Reach out to us or reply to this email, and we’ll help you find the right fit.

That's all for this week.

Remember, the exit you've worked toward shouldn't get cut in half by a tax bill you didn't see coming. Start the conversation early, build the right team, and give yourself options.

Reach out to us whenever you're ready to walk through any of this.

Talk next week,

Brian Dukes
Managing Partner at Exitwise