What is the best tax strategy for selling a business before you retire?
Start 2 to 5 years before the sale: the biggest savings (entity choice, QSBS holding period, gifting shares to family or a trust, a charitable trust, state residency) must be in place before a letter of intent exists. At closing, the levers left are deal structure: asset vs stock allocation, an installment or structured installment sale to spread the gain, and the year you take the money.
By Hans Goldstein, Enrolled Agent, admitted to practice before the IRS · Updated
Short answer: the plan is a timeline. The big moves need years of lead time; the closing-table moves only change when the gain is taxed and at what rate.
The timeline
| When | Move | Code section | Read |
|---|---|---|---|
| 5 years out | C corporation stock: start the 5-year QSBS clock; consider converting the entity | IRC 1202 | QSBS |
| 3 to 5 years out | Gift shares to family or a trust while the value is lower | IRC 2511, 2503(b) | gifting shares |
| 2 years out | Move to a no-tax state, for real, well before the deal | State residency rules | residency change |
| 1 year out, before any LOI | Fund a charitable remainder trust with shares | IRC 664 | CRT |
| At LOI | Asset vs stock, 338(h)(10), personal goodwill, price allocation | IRC 338, 1060 | allocation, personal goodwill |
| At closing | Installment or structured installment sale to spread the gain | IRC 453, 453A | structured installment sale |
| First 3 years after | Roth conversions in low-income years; watch NIIT and IRMAA | IRC 408A, 1411 | Roth conversion, NIIT |
Every row after "At LOI" is still available to a seller who starts late. Every row before it is not: once a buyer and price exist, gifts and trusts are valued at the deal price and the IRS can treat a prearranged sale as yours.
Worked example: $5,000,000 at 62
A married owner, 62, in California, $120,000 of other income, sells the business for $5,000,000 with a $250,000 basis (no recapture assumed). The gain is $4,750,000. A cash sale adds $1,711,809 of tax in the sale year ($943,200 federal, $175,560 NIIT, $593,049 California). A 10-year structured installment sale at 6% adds $93,895 in year one and $1,268,425 on the gain over ten years, and pays $679,340 a year.
| Cash sale | 10-year structured installment sale | Charitable remainder trust | |
|---|---|---|---|
| Tax in the sale year | $1,711,809 | $93,895 | None at the trust's sale; a partial charitable deduction |
| Tax on the gain, all years | $1,711,809 | $1,268,425 | Paid as distributions come out (four-tier rules) |
| What you get | $3,288,191 after tax at closing | $679,340 a year for 10 years ($6,793,398 in all) | A set percentage of the trust every year for life |
| What heirs get | What is left | Remaining payments (IRD) | Nothing from the trust: the remainder goes to charity |
| After-tax value in year 10, both at 6% | $4,965,342 | $5,612,729 | See the CRT calculator |
| Medicare IRMAA, ages 65 to 73 (couple) | $76,220 | $124,848 | Depends on the payout |
Give both the same 6% return and tax every dollar of interest: in year 10 the cash seller has $4,965,342 and the structured-sale seller $5,612,729, $647,387 more.
Tax figures are federal income tax (including any alternative minimum tax), the 3.8% net investment income tax and California income tax added by the sale, from the live Big Sale Tax engine: married filing jointly, 2026 federal law (IRS Rev. Proc. 2025-32) and the 2026 FTB schedule held flat for every year.
Later brackets are indexed, so later years are shown conservatively. The 6% payout rate is an illustration, not a quote.
The retiree angle: Medicare IRMAA and Social Security
Medicare Part B and D premiums are set from your income two years earlier. A sale at 62 is read for premiums at 64, before Medicare starts, so the cash sale year itself costs no surcharge. Spreading the sale changes that: each structured payment year from 63 on is read at 65 and later.
In this example the couple pays $124,848 of IRMAA surcharges from 65 to 73 with the structured sale and $76,220 with the cash sale invested at 6% (2026 tiers held flat). That $48,628 difference is real and small next to the $647,387 gap.
Sale income also makes up to 85% of Social Security benefits taxable in each year it lands (IRS Publication 915). If you can wait, claiming after the big payments end, or a schedule weighted to later years, helps.
A sale that ends work income can be reported to SSA on Form SSA-44 as a life-changing event to lower IRMAA, but the sale gain itself is not a qualifying event. Details: Medicare.gov, costs and IRMAA tiers.
Find your path
Not sure which rows apply? Find your best exit path in 12 questions. Related: how to avoid capital gains tax selling a business, capital gains tax on the sale of a business, installment sale of a business.
Related guides: structured installment sale, estate tax exemption 2026, ILIT after selling property.
Frequently asked questions
When should I start tax planning before selling my business?
Two to five years ahead. QSBS needs a five-year holding period, gifts and charitable trusts must happen before a buyer and price exist, and a state move needs to be real well before closing.
Is it better to sell my business before or after I retire?
For tax, the question is which years the gain lands in. Selling while still working stacks the gain on wages; spreading it into lower-income retirement years can lower the rate, but watch Medicare IRMAA and Social Security taxation in those years.
Does selling my business affect Medicare premiums?
Yes. Premiums are based on income two years earlier, so a sale at 63 or later raises Part B and D premiums two years after. A sale at 62 or earlier is read before Medicare starts.
Can I still do anything if I already signed an LOI?
Yes: allocation of the price, personal goodwill, an installment or structured installment sale, and the timing of closing. Gifts and charitable trusts are much weaker once a deal exists.
Asset sale or stock sale?
Buyers prefer assets (new depreciation); sellers prefer stock (all capital gain, one level of tax for a C corporation). A 338(h)(10) election or a price-allocation trade often bridges the gap. See asset sale vs stock sale.
Sources
- IRC 1202, qualified small business stock (Cornell LII)
- IRC 664, charitable remainder trusts (Cornell LII)
- IRC 338(h)(10), deemed asset sale election (Cornell LII)
- IRC 1060, purchase price allocation (Cornell LII)
- IRC 453, installment method, including 453(f)(6) and 453(i) (Cornell LII)
- IRC 453A, interest charge and pledge rule (Cornell LII)
- IRC 1411, net investment income tax (Cornell LII)
- CMS, 2026 Medicare Parts A and B premiums and deductibles
- SSA, income-related monthly adjustment amount and life-changing events (Form SSA-44)
- IRS Publication 915, Social Security benefits
- IRS Rev. Proc. 2025-32, 2026 inflation adjustments
- California FTB, tax calculator, tables and rates
Links checked October 30, 2026.
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.
Insurance products offered through Goldstein & Co. LLC dba Goldstein Insurance Services, CA license 4273294. If you implement a structured installment sale through that business, Hans is paid a commission by the insurer; it is built into the payout rate. See the disclosures.
Also free: the book Same Sale, Different Tax, the same $1,000,000 gain taxed ten ways. Want it run on your sale? Book a free scope call to see whether the Big Sale Tax Analysis is worth it.
Who you will talk to
Hans Goldstein · Sacramento, California
Hans Goldstein: Tax & Exit Planning, an independent practice. Enrolled Agent, admitted to practice before the Internal Revenue Service. CA Insurance License #4273294, NPN 20602398.
- What happens first
- You fill in the short form for a free scope call, about 5 minutes. Hans reviews every one personally and replies within 1 business day. If it is a fit, you get a link to book the call.
- The scope call
- Fifteen minutes, free: price, timeline, what you are selling and what the money is for. Scope means you hear whether the analysis is worth it for your sale.
- What you get
- A written side-by-side comparison of your cash-sale baseline against every path that fits, year-by-year numbers, a written recommendation, and a review meeting with you and, if you like, your CPA and attorney.
- What it costs
- The scope call is free. The Big Sale Tax Analysis is $5,000 per household per transaction, only if you decide it is worth it. No retainer, no hourly billing, no obligation to use any strategy.
- How Hans is paid
- The $5,000 fee pays for analysis only and is not reduced or credited if you buy anything. You are never required to buy anything. No referral fees are paid to or received from brokers, CPAs or attorneys. Hans is also a licensed insurance producer with a separately owned insurance business. That business is not part of this engagement, and the analysis does not recommend insurance products. If you later choose an installment sale funded through an insurance company, that company pays Hans a commission through his separate insurance business. He may be compensated by that business if you use an insurance-funded installment sale. Hans is an Enrolled Agent (EA), admitted to practice before the Internal Revenue Service. He is not a CPA, attorney or registered investment adviser; the analysis models tax effects and does not recommend specific securities. Read the disclosures.
Book a free scope call or call 213-340-2018. Hans answers or calls back the same business day.
Selling in the next five years?
Send the rough price, entity type and your target year. On a free scope call we put your sale on the timeline and show which rows still count.
Prefer email? Request the analysis by email.
You talk to Hans Goldstein. Enrolled Agent, admitted to practice before the IRS.