A business to sell? Trump tax law offers owners a better way to cash out

Looking to sell your small business in the next few years? The One Big Beautiful Bill Act could put millions more in your pocket.

President Donald Trump’s signature bill, signed into law in July, significantly expanded the benefits of qualified small business stocks that are subject to special capital gains tax rules. More businesses can now convert to C corps for tax benefits. This is likely to be a boon for recently founded AI startups looking to get rich with their own exit strategies, but executives in many sectors of the economy looking to sell their businesses in the coming years could enjoy significant tax savings.

To be sure, there are eligibility requirements and navigating the QSBS planning process can be complicated. But for many small businesses currently considering an exit strategy, it’s worth considering. According to a recent report from the Exit Planning Institute, older business owners are the most likely to be considering selling, with 58% of baby boomers saying they plan to sell their business within the next five years. That compares with 39% of Gen Xers and 48% of Millennials, according to 2023 data. But regardless of age, data shows that exit planning is a top priority among entrepreneurs of all generations.

First of all, the basics. The new law increases the tax-free profit limit for eligible C corporations that issue stock after July 4 to $15 million from the previous $10 million threshold. It would also shorten the holding period for shares from five to three years and provide partial tax incentives for owners who sell after three or four years. This is important because it means that companies interested in selling sooner than five years, but who previously thought QSBS was not an option, can reconsider their strategy. Additionally, increasing the asset limit from $50 million to $75 million will make more small and medium-sized businesses eligible, potentially opening up this option to businesses that were previously ineligible. The law also provides for inflation adjustments.

Here we provide details on what small businesses need to know about how favorable changes to QSBS rules could bring them more capital if they decide to sell.

S corporation and C corporation tax calculations are changing and can add up to millions of dollars

To qualify, a company must be incorporated as a C corp. Many businesses know little about their corporate structure, but understanding it is an important first step as it can make a big difference for tax purposes.

Corey Pederson, a wealth strategist at Crew Advisors in Salt Lake City, said that before the Tax Cuts and Jobs Act and the One Big Beautiful Buildings Act, it wasn’t attractive for small businesses to be C units, and many companies still aren’t organized that way.

Rather, many people choose sole proprietorships or partnerships, which, with the exception of limited partners, pay self-employment and individual taxes. According to the Small Business Administration, many businesses also choose to become S corps, a special type of corporation designed to avoid the double taxation drawbacks of regular C corps. S corps allow profits and some losses to be passed directly to the owner’s personal income without being subject to corporate tax rates. This type of incorporation became more common after changes to the tax law in 2017 allowed more companies to qualify for greater tax savings.

But now more companies may have the added incentive to become C corporations. “This widens the net of who should consider QSBS,” said Brian Gray, a partner at Los Angeles accounting firm Garthy Schneider.

Owners can sell faster than under previous law

U.S. taxpayers generally must pay federal capital gains tax when they sell their company’s stock for a profit. However, qualified small business stock provides significant federal tax benefits for entrepreneurs, startup founders, early employees, and investors by allowing them to exclude or defer capital gains taxes when selling qualified stock. With proper planning, those savings can be combined with other estate planning strategies for even greater tax savings, Gray said.

Many small businesses looking to sell in the next few years could potentially reap millions of dollars in QSBS-related tax benefits by converting to a C corp. This includes domestic technology, manufacturing, wholesale and retail companies. Previously, owners had to hold their shares for five years to receive the tax benefits, but the new law provides for a phased approach. After five years, shareholders receive 100% tax benefits. In the fourth year, you can receive 75% of the benefit and in the third year, you can receive 50%, which could make it more attractive to many owners, Gray said.

Double taxation is a disadvantage

The main tax disadvantage of a C corp is double taxation. This means that corporate profits are taxed at the corporate level and then taxed again when distributed to shareholders as dividends. But there are ways to avoid double taxation issues, so it makes sense to consult a tax professional, Pederson said.

If you’ve been a small business owner for 10 to 20 years, there’s a good chance you have personal savings. Instead of extracting profits from your business, Pederson says, you should keep it with the company and use your personal savings to cover expenses. “If you’re not taking distributions from companies, you’re not paying double tax,” he said, adding: “If you don’t have enough savings to cover your expenses, it won’t work.”

According to data from the U.S. Census Bureau, by 2023, 2 million small businesses (those with 500 or fewer employees) will have formally organized as corps. Many of these companies could benefit from additional savings under the new tax law. Older business owners should carefully consider that possibility, especially in light of the fact that 27% of boomer entrepreneurs say they’re not ready for a formal evaluation plan and 9% say they’re not ready for a succession plan, according to the Exit Planning Institute.

Even if you’ve considered converting to a C corp before and dismissed the idea, it’s worth thinking about it again, said Natalie Welton, senior wealth advisor and wealth strategist at HB Wealth in Atlanta, adding that the additional $25 million in room in particular opens the door for more companies to convert to C corps.