Business Owners
Owners spend months negotiating price and days thinking about structure. Structure is usually where the money is.
If you own a business in Illinois doing somewhere between $5 million and $25 million in revenue, the sale is likely the largest single financial event of your life. It is also the one most often planned last.
The question owners ask is "what's my business worth?" The question that determines their retirement is "what will I keep?" Those are different numbers, and the gap between them is set by decisions made before the letter of intent is signed — not after.
There is no single tax rate on a business sale. What you pay depends on how the deal is structured, how the purchase price is allocated, what entity you operate through, and how long you have held the equity.
| Layer | Rate | Applies to |
|---|---|---|
| Federal long-term capital gains | 0 / 15 / 20% | Gain on assets held more than a year, banded by taxable income |
| Net investment income tax | 3.8% | Investment income above the threshold — bringing the federal top to 23.8% |
| Illinois individual income tax | 4.95% | Capital gains too. Illinois gives them no preferential rate. |
| Illinois replacement tax | 1.5% | Net income of S corporations and partnerships — often overlooked entirely |
| Ordinary income rates | up to 37% | Depreciation recapture, inventory, and consulting or non-compete payments |
Rates current as of August 2026. Your effective rate depends on the mix, not any single line.
That last row is the one that surprises people. A deal can be negotiated at a headline price, allocated in a way that pushes several hundred thousand dollars into ordinary income, and cost the seller far more than the same price allocated differently.
This is the single largest structural fork, and buyer and seller want opposite things.
An asset sale. The buyer purchases the assets rather than the company, gets a stepped-up basis, and depreciates it going forward. They also leave behind unknown liabilities. For the buyer this is cleaner and worth real money.
A stock sale. You sell the equity, and the gain is generally capital gain throughout. Simpler, and usually taxed more favourably.
Most deals land on an asset sale because buyers push hard for it, which means the purchase price allocation becomes the negotiation that matters. Allocating to goodwill is capital gain. Allocating to equipment triggers depreciation recapture at ordinary rates. Allocating to a consulting agreement or non-compete is ordinary income — and in some structures brings self-employment tax too.
Allocation is negotiable, and it is worth negotiating. The buyer has a mirror-image incentive: what is bad for your tax bill is often good for theirs. That tension is a legitimate part of the deal, and it is far easier to influence before terms are agreed than after.
Qualified Small Business Stock under Section 1202 lets founders exclude a substantial portion of their gain from federal tax. It has always been one of the most valuable provisions available to a business owner — and one of the most commonly missed, because eligibility is determined years before anyone thinks about selling.
The One Big Beautiful Bill Act changed it materially for stock acquired after July 4, 2025:
| Old rules | Stock acquired after 4 July 2025 | |
|---|---|---|
| Holding period | More than 5 years, all or nothing | 50% at 3 years, 75% at 4, 100% at 5 |
| Per-issuer cap | $10M | $15M, inflation-adjusted after 2026 |
| Gross assets limit | $50M | $75M, inflation-adjusted after 2026 |
The tiered holding period is the significant change. Under the old rules an owner selling at four years got nothing; now they exclude 75%. The higher gross-assets ceiling also brings companies into range that were previously too large to qualify.
Two things to be clear about. QSBS requires C corporation stock — S corporations and LLCs do not qualify as they stand, though there are paths to convert, and the clock starts at conversion. And the exclusion is federal; Illinois has no equivalent.
The decision that determines QSBS eligibility is made at formation or conversion, not at sale. If an exit is anywhere in the next five years, this is worth examining now rather than when a buyer appears.
Once a letter of intent is signed, most of the tax outcome is fixed. Before that, several levers remain open.
Most owners approaching an exit have an accountant, an attorney, and possibly an investment banker. Each is competent, and each is looking at their own portion.
What is frequently missing is anyone holding the whole picture: how the deal structure interacts with your personal tax position, what the proceeds need to produce in retirement income, what it means for your estate, and what the number needs to be for the sale to actually accomplish what you want it to.
That coordination is what we do — the quarterback role, not another specialist. Not as a replacement for your CPA or your attorney, but alongside them, as the person whose job is the whole picture rather than one part of it. And because we are a registered investment adviser held to a fiduciary standard, we are obligated to act in your interest — including when that means telling you the offer is not enough, or that this is the wrong year to sell.
One more thing worth saying plainly, because it shapes how we approach this. Before Bayworth, our founder spent seven years as co-founder and executive vice president of a technology company. We have been on your side of the table, not only across it — and the questions on this page are not theoretical to us.
Two related pieces: exit planning covers the two to three years before a deal — readiness, timing, and what the proceeds actually need to produce. Cash balance plans cover the largest deduction available to most owners in the high-income years leading up to an exit.
A conversation now is worth more than a conversation after the letter of intent. We serve business owners across Chicago and the North Shore, in person or by video.
Twelve questions, about three minutes — scored across the business, the finances and you.
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