Compare asset sale vs stock sale. See exactly what you'll keep after taxes.
I built this calculator to help business owners understand the complex tax implications of selling their business before they commit to a deal structure. The difference between a well-planned and poorly-planned sale can easily exceed hundreds of thousands of dollars in unnecessary taxes.
Your entity type fundamentally changes how the sale is taxed. C corporations face potential double taxation (corporate level + shareholder level). S corporations, LLCs, and partnerships are "pass-through" entities where gains flow directly to your personal return. Sole proprietorships are treated as direct asset sales.
The calculator compares two primary sale structures side-by-side:
In an asset sale, how you allocate the purchase price among different asset categories dramatically affects your tax bill. The calculator models:
Using 2025 federal tax brackets and your state's rates, I calculate:
I recommend running multiple scenarios with different allocations. Buyers prefer allocating more to depreciable assets (faster write-offs), while sellers prefer allocating more to goodwill (capital gains rates). Finding a mutually beneficial allocation is a key negotiation point.
This calculator is designed for business owners contemplating a sale, not for post-sale tax filing. Use it during these critical stages:
The best time to plan is well before you're under a letter of intent. At this stage, you can:
When you have a potential buyer and are negotiating terms:
Once under LOI, use the calculator to:
This tool provides estimates for planning purposes. Do not use it for:
The fundamental decision in most business sales is whether to sell assets or equity:
Asset Sale: The business sells its individual assets (equipment, inventory, customer lists, goodwill) to the buyer. The legal entity continues to exist and the seller retains any liabilities not assumed by buyer. The buyer gets a "stepped-up basis" in the assets, allowing fresh depreciation deductions.
Stock Sale: The seller transfers ownership of the entity itself (shares of stock or LLC membership interests). The buyer inherits the entity's existing tax basis in assets, liabilities, contracts, and history. Simpler to execute but less favorable for buyers.
The character of your gain determines the tax rate:
When you sell a depreciated asset for more than its adjusted basis, the IRS "recaptures" the depreciation deductions you previously claimed:
Section 1202 provides potentially enormous tax benefits for C corporation stock:
If you receive payments over multiple years, you can spread gain recognition:
An additional 3.8% tax applies to investment income (including capital gains) for taxpayers with modified AGI exceeding:
Many business owners wait until they have a buyer to think about tax structure. By then, it's often too late:
Solution: Work with a tax attorney 2-3 years before a potential exit to optimize structure.
The purchase price allocation in an asset sale is negotiable. Both parties must agree and file consistent Form 8594s. Many sellers accept buyer's preferred allocation without pushback, costing themselves significant taxes.
Solution: Model different allocations and understand the dollar impact. Use the difference as a negotiation point—you may accept slightly less total price for a better allocation.
Federal planning often overshadows state tax implications:
Solution: Include state taxes in all projections. If relocating, understand "departure year" audit risks.
Installment sales seem attractive for tax deferral, but traps exist:
C corporations selling assets face potential double taxation:
This can result in combined rates exceeding 40%. Stock sales avoid corporate-level tax but shift liability concerns to buyer.
The QSBS exclusion requires holding stock for more than 5 years. Selling at 4 years and 11 months means losing potential $10M+ in tax savings. Track your holding period carefully.
If you're 3+ years from a potential sale:
In asset sales, allocation is negotiable within fair market value constraints:
Installment treatment can reduce overall taxes by spreading income:
If charitable giving aligns with your goals:
Reinvesting capital gains into Qualified Opportunity Zone Funds provides:
Note: Must invest within 180 days of gain recognition.
For high-tax state residents (California, New York, New Jersey):
If deal includes earnouts based on future performance:
I recommend working with a tax attorney or CPA experienced in M&A transactions when:
In an asset sale, you sell individual business assets (equipment, inventory, customer lists, goodwill) and the buyer gets a stepped-up basis for depreciation. In a stock sale, you sell your ownership interest (shares or membership units) and the buyer inherits your existing tax basis, liabilities, and contracts. Asset sales typically favor buyers (tax benefits), while stock sales typically favor sellers (cleaner capital gains treatment, no allocation disputes).
Total tax depends on many factors: your entity type, sale structure, purchase price allocation, holding period, state of residence, and other income. A typical range is 25-45% of gain for asset sales (blended ordinary income and capital gains rates) and 20-30% for stock sales (primarily capital gains). California residents face an additional 9-13% state tax since CA doesn't have preferential capital gains rates.
Yes, significantly. C corporations face potential double taxation on asset sales (corporate tax + dividend/liquidation tax). S corporations, LLCs, and partnerships are pass-through entities where gain flows to your personal return once. Sole proprietorships are treated as direct asset sales. C corporations may qualify for QSBS exclusion (up to 100% federal exclusion), which can make them most advantageous despite theoretical double taxation.
In an asset sale, you must allocate the total purchase price among individual asset categories (inventory, equipment, goodwill, etc.). Each category has different tax treatment—inventory is ordinary income, goodwill is capital gain. Both buyer and seller must agree on allocation and file consistent Form 8594s. This allocation is negotiable and can swing your tax bill by tens of thousands of dollars.
Self-created goodwill typically has zero basis and is taxed as long-term capital gain if held over one year. For 2025, rates are 0% (income under $48,350 single), 15% ($48,351-$533,400), or 20% (above $533,400), plus 3.8% NIIT for high earners. This is significantly better than ordinary income rates (up to 37%). Maximizing goodwill allocation is usually in the seller's best interest.
When you sell depreciated assets for more than adjusted basis, the IRS "recaptures" prior depreciation deductions. Section 1245 property (equipment, vehicles, furniture) is recaptured at ordinary income rates—up to 37% federal. Section 1250 property (buildings) has a maximum 25% rate on the "unrecaptured" portion. In installment sales, depreciation recapture is recognized immediately in year one—it cannot be deferred.
Qualified Small Business Stock (Section 1202) can exclude up to 100% of gain (maximum $10 million or 10x basis) from federal tax. Requirements: C corporation stock, original issuance (not purchased from another shareholder), held more than 5 years, active business (not investment holding), company had under $50M in gross assets when stock was issued. Critical caveat: California does NOT conform—you still pay CA tax on the full gain.
The 3.8% NIIT applies to investment income (including capital gains from business sales) when your modified AGI exceeds $250,000 (MFJ) or $200,000 (single). However, if you materially participated in the business, gains may be exempt from NIIT. The rules are complex—material participation in the year of sale and prior years matters. Consult a tax professional for your specific situation.
Yes. Payments allocated to a covenant not to compete (non-compete agreement) are taxed as ordinary income to the seller, not capital gains. They're also subject to self-employment tax in some circumstances. From the buyer's perspective, they're amortizable over 15 years. Sellers generally want minimal allocation here; buyers may prefer more (deductible faster than goodwill in some cases).
Installment sales spread gain recognition over the payment period, potentially keeping you in lower tax brackets. Benefits: tax deferral, steady income, interest earnings. Drawbacks: buyer default risk, depreciation recapture recognized immediately, you're lending to the buyer. Best for sellers who don't need immediate liquidity and trust the buyer's creditworthiness. Get security interest in business assets.
Yes. You can elect out of installment treatment and recognize all gain in the year of sale. This might be advantageous if: you expect higher tax rates in future years, you want to invest proceeds in opportunity zones (180-day deadline), or you want to use losses to offset the gain. Make the election on your tax return for the sale year; it's generally irrevocable once made.
California has a significant trap: it doesn't allow installment treatment for California-source income received by non-residents. If you sell a California business and move to Texas, California will tax the entire gain in the year of sale—even if you're receiving payments over 10 years. This affects exit planning significantly. Consult a CA tax specialist before relocating post-sale.
California taxes all income, including capital gains, at ordinary income rates—up to 13.3%. There's no preferential rate for long-term gains. California also doesn't recognize the federal QSBS exclusion, so you'll pay full CA tax even if you exclude gain federally. A $10M QSBS sale could still generate $1.33M+ in CA tax. This makes CA one of the worst states for business exits.
Potentially, but California's Franchise Tax Board aggressively audits "departure year" returns. You must genuinely establish domicile in the new state BEFORE the sale. Factors include: where you sleep most nights, driver's license, voter registration, where family lives, professional licenses, bank accounts. Moving after signing an LOI is red flag territory. Plan 12-24 months ahead and document everything.
Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire (dividends/interest only), South Dakota, Tennessee, Texas, Washington, and Wyoming. For a $5M gain, the difference between California (13.3%) and Texas (0%) is $665,000 in state tax alone. However, "source" rules may still apply—income from a California business may be CA-taxable regardless of your residence.
Both have roles. Tax attorneys are valuable for: deal structuring, purchase agreement review, complex entity planning, QSBS qualification analysis, and privilege-protected advice. CPAs excel at: tax return preparation, detailed calculations, ongoing compliance, and audit representation. For sales over $1M, I recommend engaging both—the attorney for strategy and documentation, the CPA for numbers and filing.
Tax attorneys typically charge $400-800/hour; CPAs $200-500/hour for M&A work. Total cost depends on complexity—simple stock sale might be $5,000-15,000; complex asset sale with multiple entities could exceed $50,000. Compare this to potential tax savings: proper structuring can easily save 5-10x the professional fees. The ROI on good advice is usually enormous for business sales.
This calculator is for planning and education—understanding the general magnitude of taxes and comparing scenarios. It's NOT a substitute for professional advice on actual transactions. Business sales have countless variables this calculator can't capture: specific asset basis, complex ownership, employment agreements, earnouts, and more. Use this tool to prepare for professional consultations, not replace them.
I advise California business owners on M&A transactions, tax planning, and exit strategies. Schedule a consultation to discuss your specific situation.