If you are a business owner thinking about selling in the near future, the upcoming changes to federal tax law could have a major impact on how much money you actually walk away with after the deal closes. One of the biggest considerations is the future of capital gains taxes.
Thanks to the Tax Cuts and Jobs Act (TCJA) of 2017, business owners have enjoyed historically low long-term capital gains tax rates. But many of the TCJA’s provisions are set to expire at the end of 2025. That means this could be your last opportunity to sell your business under the current, more favorable tax structure.
Understanding The Potential Tax Hike
Under current law, the top long-term capital gains tax rate is 20 percent, plus an additional 3.8 percent Net Investment Income Tax (NIIT). This brings the effective top rate to 23.8 percent for high-income earners.
However, once the TCJA sunsets at the end of 2025, and depending on legislative action, the top capital gains rate could revert to 39.6 percent, which is the highest ordinary income tax rate. Including the NIIT, this could bring the effective rate to over 43 percent for some sellers. This would amount to nearly double the current tax liability for qualifying business sales, which is why many tax advisors and M&A professionals are urging business owners to begin planning now.
Why This Matters If You're Thinking About Selling
You Could Lock In Lower Capital Gains Rates
If you sell your business before the end of 2025, you could still benefit from the existing long-term capital gains tax rate. This could save you a significant amount of money, especially if your sale is expected to generate a substantial gain. Timing your exit properly could mean the difference between a 23.8 percent tax bill and one that exceeds 40 percent.
Your Sale Structure Affects How You're Taxed
Not all business sales are treated equally. Some transactions are taxed as capital gains, while others may be taxed as ordinary income. For example, earn-outs, seller financing, or asset-based deals can sometimes push part of your proceeds into the ordinary income category. Knowing how your sale is structured is critical, because this directly influences how much you will owe in taxes.
Before going to market, it is important to work with a qualified advisor who can help you structure your sale in a way that preserves as much of your net proceeds as possible.
You Will Keep More Money In Your Pocket
The goal of any exit is not just to sell the business, but to walk away with the maximum amount of money after taxes, fees, and obligations. If capital gains rates increase in 2026 as expected, a business owner who sells in 2025 could walk away with hundreds of thousands—or even millions—more in net proceeds than someone who waits too long. Selling now could be one of the most financially strategic moves you make for your future.
How To Start Preparing
Selling a business is not something you can do overnight. It takes time to prepare your financials, clean up your operations, and get everything in place for a smooth transaction. If you are thinking about selling within the next 12 to 18 months, now is the time to start preparing.
Begin by speaking with your CPA or tax advisor to confirm how your business sale would be taxed under current laws. Identify whether your business sale would qualify for long-term capital gains treatment, or if there are ordinary income components involved. Work with an M&A advisor who can help you prepare your company for sale and market it effectively to the right buyers.
Conclusion
If you are a business owner with plans to sell in the next few years, 2025 could be your best opportunity to do so under favorable tax rates. With the potential for capital gains taxes to rise dramatically after the sunset of the Tax Cuts and Jobs Act, delaying your exit could cost you a significant portion of your proceeds.
At Exit Stage Left Advisors, we help business owners plan for successful exits that maximize value and minimize surprises. By acting now, you can take advantage of a more predictable tax environment and position your business for a smooth and profitable transition.
Do not wait until the end of 2025 to start the process. Begin your planning today, and make sure that when you sell your business, you keep more of what you have earned.
