Case Study: A $10M Business Sale Done Right

A liquidity event like a business sale is a defining moment for $1M+ entrepreneurs, unlocking decades of sweat equity into transformative wealth. A $10M sale can yield life-changing capital, but without meticulous planning, taxes, poor reinvestment, and regulatory traps can erode 40–50% of proceeds.

Federal capital gains taxes (20%), the 3.8% Net Investment Income Tax (NIIT), and state levies (e.g., 13.3% in California) loom large, while reinvestment missteps can squander gains. With over 40 years of fiduciary mastery, navigating market chaos from Black Monday to 2008, the Freedom Capital Playbook demands precision: execute a business sale to dominate your financial future.

This case study explores how a $10M business sale was executed with elite strategies, offering actionable tactics for entrepreneurs to maximize wealth and secure a lasting legacy.

The Stakes of a Business Sale

A business sale generates capital gains on the difference between the sale price and the owner’s basis (original investment plus improvements). For a $10M sale with a $2M basis, $8M is taxable at 20% federal capital gains, 3.8% NIIT, and state rates (0% in Florida, up to 13.3% elsewhere), costing $1.9M–$2.7M without optimization. A 2024 PwC report estimates that poorly planned sales lose 30–40% to taxes and fees, with 25% of sellers failing to reinvest proceeds effectively.

Post-sale, entrepreneurs face reinvestment risk—parking funds in low-yield accounts (1% APY) or chasing speculative assets like crypto. Regulatory hurdles, such as IRS Section 1202 exclusions or state nexus rules, add complexity. These fiduciary strategies, honed through decades of tax battles, use tax deferral, structured exits, and diversified reinvestment to preserve wealth.

Case Study: The $10M Manufacturing Exit

A 58-year-old entrepreneur owned a manufacturing firm valued at $10M in 2023, with a $3M basis (original investment plus reinvested profits). Initially, the owner planned a lump-sum sale, expecting $7M in taxable gains. This would trigger $1.4M in federal capital gains taxes (20%), $266K in NIIT (3.8%), and $532K in California state taxes (7.6% effective rate), totaling $2.2M in taxes.

Post-sale, the owner considered a savings account (1.5% APY), risking stagnation. A fiduciary advisor intervened, orchestrating a structured exit. They used a seller-financed installment sale, spreading $7M in gains over five years ($1.4M annually), keeping AGI below $553,850 (15% capital gains threshold).

The advisor allocated $4M to a municipal bond ladder (3.5% tax-free yield), $2M to a dividend ETF (NOBL, 2.5% yield), and $1M to growth stocks (VOO, 8% return). A $500K donor-advised fund (DAF) deducted $150K in taxes. By 2025, taxes dropped to $1.5M—a $700K savings—and the portfolio grew to $7.8M, yielding $200K annually. The exit secured the entrepreneur’s legacy.

Five Elite Strategies for a Successful Business Sale

Entrepreneurs must execute a business sale with precision to maximize wealth. Here are five strategies to optimize your liquidity event:

1. Use Installment Sales for Tax Deferral: Structure the sale to receive payments over 3–5 years, spreading capital gains to stay below the 20% bracket ($553,850 MFJ) and NIIT ($250,000 AGI).
   
   
2. Leverage Section 1202 Exclusions: If eligible (C-corp, held >5 years), exclude up to $10M or 10x basis from capital gains under IRS Section 1202, saving up to $2M in federal taxes.
   
   
3. Deduct Sale-Related Expenses: Write off legal, accounting, and broker fees (5–10% of sale price) to lower AGI, reducing NIIT and state tax exposure.
   
   
4. Reinvest in Tax-Efficient Assets: Allocate 50% of proceeds ($3M–$5M) to munis or dividend aristocrats (2–4% yield) for tax-free or low-tax income, and 30% to growth ETFs for 6–8% returns.
   
   
5. Fund Charitable Vehicles: Contribute appreciated assets to a DAF or Charitable Remainder Trust (CRT) for immediate deductions (up to 30% AGI), avoiding capital gains taxes.

Actionable Tips for Entrepreneurs

• Audit Your Basis Early: Use CapIQ or a CPA to calculate your business’s tax basis, maximizing Section 1202 or deduction potential. The advisor warns: “No basis, no tax shield.”
  
  
• Model Tax Scenarios: Deploy TurboTax or RightCapital to project AGI across sale structures, targeting the 15% capital gains bracket to save 5% on gains.
  
  
• Engage a Fiduciary Team: Partner with a CFP and tax attorney versed in liquidity events, ensuring IRS Section 453 (installment sales) compliance.
  
  
• Monitor State Nexus: Track sale-related activities by state via TaxJar to avoid unexpected liabilities (e.g., California’s 13.3% on sourced income).
  
  
• Reinvest for Compounding: Channel proceeds into diversified ETFs or real estate, targeting $200K annual passive income, as a 2024 entrepreneur achieved.

Challenges and Considerations

Business sales are fraught with complexity. Tax volatility—federal gains rates (20%) and NIIT (3.8%)—can spike with high AGI, while state taxes vary (0% in Florida, 13.3% in California). Reinvestment risk threatens post-sale; a 2023 bear market cut growth stock values 15% (Morningstar, 2024).

Lockout risks, like sponsor disputes for NIL-related entrepreneurs, disrupt cash flow, averaging 2–6 months (Sportico, 2024). Regulatory hurdles, such as IRS audits on Section 1202 or installment sale compliance, require meticulous records. Liquidity needs—$315K average for retiree health costs (Fidelity, 2024)—demand buffers.

These strategies counter with installment sales, DAFs, and diversified portfolios. Behavioral traps—greed for quick gains or fear of taxes—derail planning. The advisor’s antidote: “Plan your exit, or the IRS plans it for you.”

Conclusion

A $10M business sale is a wealth-defining liquidity event, but elite execution ensures lasting success. With 40+ years of fiduciary mastery, these strategies—outsmarting taxes and scams—prove it’s about precision, not luck. The manufacturing entrepreneur’s $700K tax cut and $7.8M portfolio showcase the power of installment sales and reinvestment.

By leveraging exclusions, deducting expenses, and funding trusts, you can dominate your exit. Don’t let taxes or missteps bleed your empire. Book a free Strategy Call at freedomcapitaladvisors.com to craft your sale plan. As the advisor says, “Your sale is your legacy—make it bulletproof.”

Sources

1. PwC. (2024). Tax Planning for Business Sales. https://www.pwc.com/us/en/services/tax/library/business-sales-tax-planning.html
2. IRS. (2025). Publication 537: Installment Sales. https://www.irs.gov/publications/p537
3. Fidelity Investments. (2024). Retiree Health Care Cost Estimate. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/2024-retiree-healthcare-costs-05012024.pdf
4. Morningstar. (2024). 2023 Market Performance and Investor Strategies. https://www.morningstar.com