Question 1

Asset sale or stock sale — which is better for taxes?

Accepted Answer

Buyers prefer asset sales because they get a stepped-up basis and can depreciate the purchase price. Sellers usually prefer stock sales because gain is taxed once at capital gains rates, whereas an asset sale by a C-corp triggers double tax (corporate level on each asset plus shareholder dividend). For S-corps and partnerships, asset sales are often acceptable because gain flows through once, but depreciation recapture on §1245 assets is ordinary income. Run both scenarios — the delta can be 10-20 points of effective tax rate.

Question 2

What is §1202 QSBS exclusion?

Accepted Answer

Internal Revenue Code §1202 excludes up to the greater of $10 million or 10× basis in gain from selling Qualified Small Business Stock. Requirements: (1) the company is a domestic C-corp; (2) gross assets never exceeded $50 million at issuance; (3) you held the stock more than 5 years; (4) the business is an active trade or business (not an SSTB like law, consulting, or financial services); (5) the stock was acquired at original issuance (not on the secondary market). For founders in tech, SaaS, manufacturing, or biotech, §1202 can zero out federal tax on an eight-figure exit.

Question 3

Do I pay NIIT on my business sale?

Accepted Answer

The 3.8% Net Investment Income Tax applies if your MAGI exceeds $200,000 single / $250,000 joint. Material participation matters: if you actively worked in the business (the §469 material-participation tests), gain from selling your interest can be excluded from NIIT as non-passive. Passive owners pay the full 3.8% on top of capital gains. Day traders and absentee LP investors pay; active operators may not.

Question 4

Should I take an installment sale under §453?

Accepted Answer

An installment sale spreads the gain over the years payments are received. Benefits: defers tax, may keep you in lower brackets, manages NIIT thresholds. Drawbacks: buyer-credit risk, §453A interest charge if the deferred balance exceeds $5 million, ineligible for depreciation recapture (recapture is fully taxable in year of sale), and inventory and publicly-traded securities can't be reported on installment method. Run the present value of deferred tax vs. the risk and interest charge.

Question 5

How is goodwill taxed on a business sale?

Accepted Answer

Self-created goodwill (built up over years of running the business) is a capital asset. Gain is long-term capital gain if held more than one year. Purchased goodwill amortized under §197 has a basis; sale gain above that basis is ordinary income under §1245 recapture rules to the extent of prior amortization. For most owner-operated businesses, nearly all goodwill is self-created and gets LTCG treatment — this is why Seller-favorable allocations push as much of the purchase price as possible into goodwill rather than equipment (§1245) or inventory (ordinary).

Business Sale Tax Calculator 2026