How Much Tax Will You Pay When You Sell Your Business?

When owners ask how much tax they'll pay on a sale, they want a single percentage. The honest answer is a range — typically somewhere around 25–40% combined — and the reason it's a range is that four structural choices, not the headline rate, decide where you land. This is general information, not tax or legal advice; work the specifics with your CPA.

The headline rate is the smallest part

Start with the federal baseline. Long-term capital gains on the sale of a business held more than a year are generally taxed at 15% or 20%, depending on your income. On top of that sits the 3.8% net investment income tax. Then your state takes its share. For most $4M–$15M owners that stacks into a combined effective rate roughly in the 25–40% range.

That's the starting point, not the answer. The four variables below routinely move an owner's actual bill by more than the difference between the 15% and 20% federal brackets. For a deeper walk-through of what you actually keep, see net proceeds after selling your business.

Variable 1: your entity type

How your business is taxed before the sale shapes how the sale is taxed. Pass-through entities — LLCs and S-corporations — are generally taxed once, at the owner level, so the gain flows onto your personal return.

C-corporations can be different. A C-corp asset sale can be taxed once at the corporate level and again when proceeds are distributed to you, a structure often described as double taxation. That single difference can swing the effective rate more than any other factor on this list, which is why entity type belongs in any exit conversation years before the sale.

Variable 2: asset sale vs stock sale

The same business sold for the same price can produce very different tax outcomes depending on whether the buyer purchases your assets or your equity.

Buyers generally prefer asset sales because they get a stepped-up basis to depreciate going forward and can leave behind unknown liabilities. Sellers often prefer stock sales because the gain is typically treated as a single capital gain. The two also allocate depreciation recapture and ordinary income differently between the parties. This is one of the most negotiated points in any deal — we cover it in detail in asset sale vs stock sale.

Variable 3: depreciation recapture

Here's the one that surprises owners. Over the years you owned the business, you deducted depreciation on equipment, vehicles, and other assets. When you sell, the portion of the gain tied to that depreciation is generally recaptured and taxed as ordinary income — at your regular rate, not the lower capital-gains rate.

In an asset-heavy business, recapture can absorb a meaningful slice of the price. It's also why the price allocation in an asset sale isn't a formality: how the total is divided across asset classes changes how much is taxed as ordinary income versus capital gain.

Variable 4: your state

The federal picture is only part of the bill. Most states tax the gain as ordinary income. Arizona and Utah both do — meaning the state share lands on top of your federal capital-gains and net investment income tax.

A handful of states, including Texas, Florida, Nevada, and Washington, impose no individual income tax on the gain. The spread between a no-tax state and a high-tax one can be several percentage points of the whole transaction, so residency and timing are worth raising with your CPA well before closing — not after.

Could QSBS apply to you?

The Qualified Small Business Stock exclusion under Section 1202 lets eligible owners exclude a large share of their gain from federal tax. The One Big Beautiful Bill Act, signed in July 2025, raised the per-issuer exclusion cap to $15M.

The catch: QSBS applies only to qualified C-corporation stock held at least five years. For most owner-operated businesses structured as LLCs or S-corps, it isn't a near-term lever — it's a forward-planning footnote. If a C-corp conversion or a new entity is on your horizon, it's worth modeling with your CPA early, because the five-year clock and the eligibility rules are unforgiving.

What this means for planning ahead

Notice that three of the four variables — entity type, deal structure, and recapture exposure — are partly within your control, and the fourth is at least worth planning around. None of them can be changed at the closing table. The owners who keep the most are the ones who model the tax outcome years before they sell, then shape the business and the deal toward it.

If you're starting to think about timing, the exit-readiness assessment is a useful first step, and your CPA is the right partner to turn these ranges into your actual number.