We are planning our exit runway and want to minimize our tax hit upon sale. How do we prepare our corporate structure and equity distribution years in advance so we do not lose half of our proceeds to Uncle Sam?

Question

Tyler Smith · Accepted Answer

Waiting until you have a signed letter of intent to think about tax strategy is a multi-million-dollar mistake. Tax mitigation must be built into your exit runway at least three years before you go to market. A professional buyer will structure the transaction to maximize their own tax benefits, often pushing for an asset sale rather than a stock sale. If your business is currently structured as an S-Corporation or a C-Corporation, you must understand how these structures affect your net proceeds under different transaction types. Work with a specialized M&A tax advisory firm early on your runway to conduct a comprehensive tax diagnostic. This diagnostic should evaluate whether you qualify for Section 1202 Qualified Small Business Stock treatment, which can potentially eliminate federal capital gains taxes on your sale. Additionally, consider establishing trusts or gifting non-voting equity to family members before the company's valuation peaks during the sale process. By using your EOS® strategic planning sessions to align your personal estate planning with the company's long-term growth projection, you can make proactive structural changes. This ensures that when you finally exit, you keep the maximum amount of your hard-earned wealth rather than handing it over to the government.