Case Study: A $10M Business Sale Done Right for Maximum Wealth

A liquidity event—such as a business sale—can be a career-defining milestone, transforming years of hard work into lasting wealth. But a $10 million sale can quickly lose its impact if you’re not careful: taxes, poor reinvestment choices, and overlooked details can eat away up to half your proceeds.

Between federal capital gains taxes (20%), the 3.8% Net Investment Income Tax (NIIT), and high state taxes (up to 13.3% in California), planning is essential. If you don’t map out your exit, you risk handing too much to the IRS and missing out on long-term compounding.

The Stakes of a Business Sale

When you sell your business, you pay taxes on the difference between your sale price and your “basis” (what you invested plus improvements). If you sell for $10 million with a $2 million basis, $8 million is taxed. Depending on your state and how you structure the sale, you could pay $1.9–$2.7 million in taxes alone. A 2024 PwC study found 30–40% of proceeds are often lost to taxes and fees if the sale isn’t planned right. Many sellers also struggle to reinvest wisely after the deal closes.

Case Study: The $10M Manufacturing Exit

In 2023, a 58-year-old business owner in California sold a manufacturing company for $10 million (basis: $3 million). The original plan was a lump-sum sale, which would have meant $7 million in taxable gains and $2.2 million in taxes—plus the risk of leaving the cash in a low-yield savings account.

A better strategy: an installment sale, spreading the payments and gains over five years. By keeping each year’s income below key tax thresholds, the owner dropped the capital gains rate to 15% and minimized NIIT.

Then, instead of letting cash sit idle, the proceeds were spread across municipal bonds (3.5% tax-free yield), dividend ETFs (2.5%), and growth stocks (8% target). A $500,000 donation to a donor-advised fund provided another six-figure tax deduction. By 2025, total taxes paid fell to $1.5 million (saving $700,000), and the invested portfolio was on track to generate $200,000/year in income and growth.

Five Smart Strategies for a Successful Business Sale

Consider Installment Sales for Tax Deferral: Taking payments over several years can lower your capital gains tax bracket and help avoid NIIT.
Look for Section 1202 Exclusions: If your business is a qualified C-corp held at least five years, you may be able to exclude up to $10 million from capital gains (check with your tax advisor).
Deduct Your Sale Expenses: Broker commissions, legal fees, and advisory costs can often be written off, further reducing your tax bill.
Reinvest Wisely and Tax-Efficiently: Use municipal bonds, dividend stocks, and diversified ETFs to keep taxes low and your money growing.
Use Charitable Giving Strategically: Donating appreciated assets before the sale can yield major deductions and avoid capital gains taxes.

Actionable Tips for Entrepreneurs

Know Your Basis: Gather all documentation on your business investment, as a higher basis can mean lower taxes.
Model Different Scenarios: Use tax projection tools to test how lump-sum vs. installment payments impact your taxes.
Build Your Team Early: Involve a tax-focused advisor and CPA long before closing the sale for the best results.
Stay on Top of State Rules: Selling a business in a high-tax state can be costly—review potential “nexus” risks if you’re moving.
Don’t Leave Cash Idle: Reinvest proceeds in a diversified, tax-efficient way to keep your wealth growing.

Challenges and Considerations

Business sales are never simple. Taxes can be higher than expected if you don’t plan ahead, and reinvesting large sums after a windfall can be just as risky as earning them. Laws also change—some deductions or exclusions could disappear in coming years. Stay disciplined, build flexibility into your plan, and avoid chasing quick gains with your new capital.

Conclusion

Selling your business is a rare opportunity to build long-term wealth—but only with careful, proactive planning. By timing your sale, deferring taxes, and reinvesting with purpose, you can turn a liquidity event into a financial legacy. For a detailed review of your own situation, schedule a complimentary strategy call at freedomcapitaladvisors.com.

Sources

PwC. (2024). Tax Planning for Business Sales. https://www.pwc.com/us/en/services/tax/library/business-sales-tax-planning.html
IRS. (2025). Publication 537: Installment Sales. https://www.irs.gov/publications/p537
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
Morningstar. (2024). 2023 Market Performance and Investor Strategies. https://www.morningstar.com