Selling Your Business When You Retire

Step by step: how to sell your business when you retire and keep more of the price

Jump to: Steps · Documents · Who to call · Options · Worked example · Mistakes · All step-by-step guides

The steps, in order

1. 2 to 3 years out
   Decide your number and what the business is worth. Work out what you need to live on, then what the business is worth. A business broker or a valuation firm gives a range. Many owners guess high. The gap between your number and the value tells you whether to sell now, build value, or wind down.
2. 2 to 3 years out
   Clean the books. Three years of clean tax returns and financial statements. Separate personal expenses from the business. A buyer pays more for numbers they trust, and a lender needs them too.
3. 18 to 24 months out
   Decide who buys. Employees (including an ESOP), a family member, a competitor, or a search fund or private equity group. Each pays differently, closes at a different speed and wants a different transition from you.
4. 12 to 18 months out
   Get your CPA and attorney in the room before the letter of intent. The letter of intent sets price and structure. After it is signed, changing structure is hard. Ask both advisors how the price will be allocated and whether the payout can be written in.
5. At the letter of intent
   Choose asset sale or stock sale, and plan the allocation. In an asset sale the price is split among goodwill, equipment, inventory, real estate and a non-compete (IRC §1060, reported on Form 8594). Each piece is taxed differently. Buyers often prefer an asset sale; sellers of a C corporation often prefer a stock sale. Personal goodwill can matter for some owners; your advisors decide. If it is C-corporation stock, check the small business stock exclusion (IRC §1202).
6. At the letter of intent
   Plan the earnout, the transition and any real estate. An earnout ties part of the price to future results, so it is paid only if the business hits targets. A transition or consulting agreement keeps you around for months. If you own the building separately, a lease or a sale of the real estate is its own deal.
7. Before the purchase agreement is signed
   Decide whether a payout arrangement belongs in this sale. In an installment sale through a structured arrangement the buyer pays the full price at closing, the money goes to an assignment company, and an annuity pays you on the schedule you pick. You are not the bank and you do not carry a note. The gain is taxed as payments arrive. Equipment recapture (IRC §1245) is taxed in year one either way (IRC §453(i)).
8. Purchase agreement to closing, 30 to 90 days
   Write it into the purchase agreement and close. The attorney adds a one-paragraph addendum. It costs the buyer nothing, and buyer financing is unaffected. It must be signed before closing. Once the money lands in your account, it is a cash sale.
9. Year of sale and the next 2 years
   Plan Medicare and Social Security. One big-income year can raise Medicare premiums (the income-related surcharge, called IRMAA) two years later, because Medicare looks back at your tax return from two years earlier. Spreading the gain over years may keep income lower. Ask your CPA to check your numbers.
10. After closing
    File and keep records. File Form 8594 for an asset sale and Form 6252 for an installment sale, with your return. Keep the closing statement, the allocation schedule and the assignment papers for your records.

Documents to gather

• Three years of business tax returns and financial statements
• Your personal tax returns for the same years
• Entity papers: articles, operating agreement or shareholder agreement, and the form of entity (S corporation, C corporation, LLC)
• A list of equipment with purchase dates and depreciation taken
• Leases, loans and key contracts
• The business valuation or broker opinion of value
• The letter of intent, once you have one
• Your retirement budget: what you need per month and where it comes from

Who to call, in what order

1. Your CPA. First, years out. Entity type, allocation, state tax and the return.
2. A business broker or valuation firm. Sets a price range and finds buyers.
3. A business attorney. Before the letter of intent. Drafts the purchase agreement and the one-paragraph addendum.
4. Your enrolled agent. Hans Goldstein, EA can run the comparison and the numbers. He is not a CPA or attorney.
5. A scope call with Hans. Free, 15 minutes, before the letter of intent. A written analysis is $5,000.
6. A financial planner. After the numbers, to fit the payments into your retirement income.

Your options compared

The right answer depends on your entity, your state and your income. Run the numbers for your own deal.

A worked example

A married couple in their late 60s who materially participate sell their business for $3,000,000. Goodwill has $0 basis. There is $300,000 of fully depreciated equipment, and the $300,000 is §1245 recapture, ordinary income in year one either way. Selling costs are $150,000. Other income is $90,000. Run October 15, 2026 with the Goldstein & Co. engine: 2026 federal and state tables, and a 5.0% payout rate assumption.

In Texas, with no state income tax, the same sale was an estimated $595,075 tax (20.9%) as a cash sale, against $144,541 on the gain over 10 years plus $250,312 on the interest. After-tax money at year 10 was $3,576,729 against $3,389,658, which is $187,071 more. The 5.0% payout rate is an assumption, not a quote, and the table assumes nothing is spent. These are estimates. If you materially participate, the 3.8% net investment income tax does not reach the business gain (IRC §1411(c)(1)(A)(iii)); your CPA confirms.

Mistakes that close the door

• Signing the letter of intent before the advisors see it. Structure is hard to change after the letter of intent. Get your CPA and attorney in first.
• Closing already, or taking the check. When the money has landed in your account, it is a cash sale. The payout option is gone for this sale.
• Ignoring the price allocation. Splitting the price among goodwill, equipment, inventory and a non-compete changes the tax. The buyer and seller both report it on Form 8594.
• Forgetting equipment recapture. Gain on depreciated equipment is ordinary income in year one, even if the rest is paid out over years.
• Not checking Medicare. One big-income year can raise Medicare premiums two years later. Plan for it.
• Letting the buyer's paper draft the deal. Buyers bring their own contract. Your attorney should add the payout language before you sign.

Run your own numbers: business sale tax calculator; structured sale calculator; sell for less, net more calculator. More problems like this one: forced to sell? step-by-step guides.

Sources, checked October 15, 2026: IRC §1060, allocation of purchase price; IRC §1245, depreciation recapture; IRC §453, installment method; IRC §1202, qualified small business stock; IRC §1411, net investment income tax; IRC §1042, sales of stock to an ESOP.