Selling Your Business in Northwest Arkansas: Tax Strategy for Owners at 60

Here's what most owners miss: the IRS doesn't see a business sale as one transaction. It sees a sale of a bundle of business assets - goodwill, equipment, inventory, customer relationships, intellectual property, real estate, non-compete agreements. Each piece lands in a different tax category, and each gets taxed differently.

The basics:

• Long-term capital gains (assets held more than one year) get preferential rates - 0%, 15%, or 20% federally, depending on your tax bracket.

• Short-term gains (held one year or less) are taxed at ordinary income rates, which can run as high as 37% federally.

• Depreciation recapture on equipment and physical assets is taxed as ordinary income up to the amount of depreciation previously taken - even if the rest of the deal is structured as an installment sale.

• Inventory and consulting agreements are also typically taxed as ordinary income.

Asset allocation in sales affects tax treatment significantly, and allocating purchase price impacts tax treatment in asset sales versus stock sales. Asset sales can trigger ordinary income tax rates on certain gains, which is why understanding the breakdown matters so much.

Quick example: You sell for $8 million with a $1 million basis. In an asset sale, $1.5 million might be allocated to equipment with depreciation recapture (ordinary income), $500,000 to inventory (ordinary income), and $6 million to goodwill and intangibles (long-term capital gains). The tax impact on each piece is dramatically different. That's why purchase price allocation is where fortunes are quietly won or lost.

At 60, you probably don't have time for a dramatic legal restructuring. But if you start 2–3 years ahead, there may still be meaningful adjustments. Always evaluate entity structure when planning for a business sale.

• Pass-through entities (LLCs, S corps, partnerships) pass all capital gains and ordinary income items directly to your personal return. You pay tax once. Arkansas also has an elective pass-through entity tax for partnerships and S corporations, which may offer additional planning flexibility.

• C corporations face double taxation on business sales without careful planning - the corporation pays tax on asset sale gains at the corporate level, then shareholders pay tax again on distributions. Stock sales avoid double taxation for C corporations, which is one reason sellers in a C corp often prefer stock sales.

• Qualified small business stock under Section 1202 can exclude up to $15 million in gains (or ten times the adjusted basis) if the stock meets IRS criteria: original issuance, active business, held at least five years, among other requirements. Not every industry qualifies - service trades, financial firms, and certain others are excluded - but for eligible C corp owners, this is one of the most powerful tax benefits available.

If you've operated as a C corp for years, evaluate with your CPA and financial advisor whether QSBS or other C corp-specific tax rules might apply to your situation.

You can't plan taxes on a number you don't know. A formal business valuation - through a broker, investment banker, or credentialed CPA - is the starting point.

But the real work is modeling what you actually keep. Proper asset allocation can significantly reduce tax liabilities. Run side-by-side projections:

Tax strategies for business owners include optimizing exit structures and timing. Selling a business can fund retirement income - but only if you model how after-tax proceeds integrate with Social Security timing, portfolio withdrawals, required minimum distributions, and healthcare costs.

Revolutionary Wealth helps Northwest Arkansas owners model multiple scenarios in plain language so they can negotiate from clarity, not guesswork.

This is where the significant difference in your final tax bill often lives.

Asset sale: The buyer purchases individual business assets - equipment, inventory, customer lists, goodwill, intellectual property. This is the most common deal structure for smaller and mid-sized business sales in Northwest Arkansas. From the seller's perspective, some sale proceeds are taxed as ordinary income (inventory, depreciation recapture on physical assets), and some as long-term capital gains (goodwill, many intangible capital assets). Asset sales can lead to higher taxes for sellers because of the ordinary income components.

Buyers prefer asset purchases for tax benefits - they get a step-up in basis and can depreciate or amortize the assets they've acquired, which lowers their future tax bill.

Stock sale: The buyer purchases your ownership interest (company stock or LLC membership units). More of the taxable gain is typically treated as capital gain, which means lower tax brackets for you. Buyers often resist stock deals because they inherit all liabilities and lose the depreciation step-up.

Key trade-off: Buyers may prefer asset sales for step-up basis while sellers often favor stock sales for capital gain treatment. You might accept a slightly lower purchase price on a stock sale if the after-tax proceeds are still higher. Potential buyers will push back - that's where negotiation and modeling matter.

One more move: separate commercial real estate from the operating business for potential tax advantages during a sale. If you own the building, consider whether selling it separately or retaining it as a rental asset changes your tax picture.

In an asset sale, IRS tax rules (Section 1060 and Form 8594) require buyers and sellers to agree on how the purchase price is allocated across asset categories:

• Class I: Cash and equivalents

• Class II: Inventory (taxed as ordinary income)

• Class III: Equipment and tangible depreciable property (depreciation recapture)

• Class IV: Real property

• Class V: Intangibles - customer relationships, trade names, intellectual property

• Class VI/VII: Goodwill and going-concern value (generally long-term capital gains)

Goodwill allocation in asset sales can reduce tax bills because it shifts more of the remaining value into the capital gain bucket. But allocating too much to consulting agreements or non-competes can backfire - converting what could have been capital gains into ordinary income at higher ordinary income rates.

Do not sign a letter of intent or purchase agreement that fixes allocation language before your CPA and financial advisor model the after-tax effect. This is where owners miss real money.

Deferring taxes doesn't erase tax obligations, but spreading income over multiple years can keep you in lower tax brackets and avoid a devastating spike in one year.

Installment sales allow sellers to recognize gain gradually as future payments arrive. Instead of one lump sum triggering a massive tax bill, annual payments spread the taxable gain across years. Installment sales can keep sellers in lower tax brackets and reduce the tax impact in any single year. Structured installment sales defer taxes over multiple years with even more predictability, sometimes using an assignment company or insurer. But be aware: depreciation recapture must still be recognized in the year of sale, regardless of payment timing. And installment sale treatment carries buyer credit risk - if the buyer pays less or defaults, you're exposed.

Roll-over equity means taking part of the purchase price as an ownership interest in the buyer's company or a new entity. This can defer recognition of some capital gains until a future liquidity event. It keeps you invested in the business's future performance, but it also means your money is tied up and at risk.

Consulting agreements can smooth other income into post-sale years, but these payments are taxed as ordinary income plus payroll taxes. Weigh the cash flow benefit against the higher tax rate.

One more option worth evaluating: selling to an ESOP can defer capital gains under Section 1042 for qualifying C corp owners who reinvest proceeds in qualified replacement property.

Many owners at 60 want the sale of their whole business to support family and causes - not just personal retirement lifestyle.

Contributing to a Charitable Remainder Trust can provide tax advantages prior to a business sale. By donating a slice of appreciated shares or units before closing, you may avoid capital gains on the donated portion, receive an income stream, and generate a charitable deduction. Pre-sale charitable planning includes timing considerations for effective tax outcomes after a sale - you generally need to complete the gift before a binding sale agreement is in place.

For estate tax planning, consider updating wills and trusts, making lifetime gifts to children or grandchildren within current federal estate and gift tax exemption levels, and shifting some ownership interest into trusts well before a sale to move future capital gains out of your taxable estate. This must be done with qualified legal counsel and plenty of lead time.

Planning should start years before a business sale to optimize tax outcomes and financial well-being. Revolutionary Wealth coordinates with local estate attorneys and CPAs to make sure the business sale, tax planning, and legacy plans tell one consistent story.

There's an emotional shift that comes with going from running a company in Springdale or Bentonville to living off investment income and sale proceeds. The financial shift is just as real.

A large business sale can create a "tax spike" year that affects Medicare IRMAA surcharges and pushes you into the highest federal capital gains taxes brackets. Implementing retirement vehicles like Cash Balance Plans enables significant pre-tax contributions before selling a business, which can offset some of that spike.

Arkansas-specific advantages matter here, too. Arkansas allows a 50% capital gain exclusion on net capital gains from business sales, and net capital gains exceeding $10 million in Arkansas are entirely exempt from state taxes. These provisions can meaningfully change your cash flow in retirement.

Build a post-sale income plan: how much of sale proceeds to keep in liquid reserves, how much to invest for growth vs. stability, and how to sequence withdrawals to manage capital gains and ordinary income across years. Your exit strategy should answer the question: does this purchase price support the life I actually want?

As fiduciary advisors, Revolutionary Wealth helps owners test "What-if?" retirement scenarios before signing a purchase agreement.

Do not navigate a multi-million-dollar business sale alone. You need:

• M&A attorney - structures the legal documents, protects against liability

• CPA/tax specialist - handles compliance, detailed tax calculations, state taxes

• Business broker or investment banker - manages the sale process, identifies potential buyers, drives the current value

• Fiduciary financial advisor - connects the dots between after-tax proceeds, retirement income, and long-term wealth

Involving the team 12–36 months early gives you time to explore installment sales, QSBS eligibility, pre-sale restructuring, and clean-up of financials. Local knowledge matters - understanding typical deal structures, valuation multiples, and buyer expectations in Northwest Arkansas influences timing and negotiation strategy.

Revolutionary Wealth's role: modeling after-tax outcomes, coordinating with your CPA and attorney, and keeping the focus on your long-term wealth - not just closing the deal.

A practical checklist of what to avoid:

• Waiting until after a letter of intent to think about taxes. This locks in unfavorable terms on deal structure and purchase price allocation before tax advisors can weigh in.

• Assuming "it's all capital gains." Depreciation recapture, inventory, and consulting agreements can generate more profit taxed at ordinary income rates than you expected.

• Ignoring state taxes and Medicare surcharges. A large income spike in the sale year can trigger IRMAA and push you into higher brackets - especially if you haven't modeled the business tax implications.

• Selling without a clear retirement income plan. If you don't know how much after-tax cash you need to sustain your lifestyle, you can't evaluate whether the offer is actually enough.

• Not separating real estate from the operating business. Bundling real property into the deal without evaluating tax treatment separately is a mistake many owners make.

This blog contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this blog will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Revolutionary Wealth LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.

Mutual Funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. An investment in the Fund involves risk, including possible loss of principal.

Rebalancing/Reallocating can entail transaction costs and tax consequences that should be considered when determining a rebalancing/reallocation strategy.

A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. There are risks associated with these types of investments and include but are not limited to the following: Typically no secondary market exists for the security listed above. Potential difficulty discerning between routine interest payments and principal repayment. Redemption price of a REIT may be worth more or less than the original price paid. Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes. This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus.

Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.

Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.

Not associated with or endorsed by the Social Security Administration, Medicare or any other government agency. Maximizing your Social Security Benefits assumes foreknowledge of your date of death. If as an example you wait to claim a higher monthly benefit amount but predecease your average life expectancy, it would have been better to claim your benefits at an earlier age with reduced benefits.

Please consider the investment objectives, risks, charges, and expenses carefully before investing in Variable Annuities. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from the insurance company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The investment return and principal value of the variable annuity investment options are not guaranteed. Variable annuity sub-accounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the annuity is surrendered.

QLACs cannot be purchased with Roth or Inherited IRA dollars; value of such IRAs cannot be included in determining 25% premium limit. If Funding Source is Traditional IRA, 25% limit is calculated by combining the total value of all Traditional IRAs as of December 31st of the previous year. If Funding source is Employer sponsored qualified plan (401k, 403b and governmental 457b), 25% limit is calculated on an individual plan basis based on the plan's account value on the previous day's market close. If you previously purchased a QLAC, the calculation of your 25% limit is more complicated. Please contact an attorney or tax professional for additional details. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.

The projections or other information generated by Monte Carlo analysis tools regarding the likelihood of various investment outcomes are hypothetical in nature, are based on assumptions that you provide which could prove to be inaccurate over time, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time.