Royal Financial

⏱ Estimated reading time: 6 min read

According to McKinsey, roughly six million (6,000,000) small- and medium-sized American businesses will face an ownership transition over the next decade. Many owners are reaching retirement age while the next generation either isn’t ready or isn’t interested in taking over. Add the artificial-intelligence boom and accelerating consolidation across media, software, manufacturing, and wealth management, and you have a quiet storm of M&A sweeping through family-owned businesses.

Selling a business is a major undertaking, and pre-sale planning is often one of the most important financial decision an owner will ever make. From taxes and residency to investments and generational wealth transfer, the right playbook matters for anyone facing a possible future liquidity event.

The clock is your biggest lever

Nearly half of professional advisors (45%) say their clients spend too little time on tax and wealth-transfer planning, according to BNY Wealth. That’s a costly gap, because almost every strategy that reduces the tax bill on a sale has to be executed well before a deal is on the table (ideally two to three years out).

If you operate in a high-growth or rapidly consolidating industry (e.g., home services, A&D, or wealth management), that timeline doesn’t always hold if a business becomes valuable almost overnight. That’s exactly why we integrate transaction-readiness services with ongoing accounting & tax work, so you’re prepared for a sale whenever the opportunity arrives, not scrambling to catch up after an offer lands.

With that runway in mind, here are a few strategies worth putting in motion early.

1. Check whether you qualify for the QSBS exclusion (C corporations only)

Qualified Small Business Stock (QSBS) can let you exclude a significant portion of your gain from federal tax. The recently enacted OBBBA made this benefit even more attractive for stock issued after July 4, 2025. The eligibility rules are specific, so confirming your status early gives you time to structure around them rather than discovering a disqualifier once a deal is underway.

QSBS also comes with a valuable backstop. If you sell QSBS held for over six months but haven’t hit the five-year mark for full exclusion, a Section 1045 rollover allows you to defer gains by reinvesting the proceeds into a new QSBS within 60 days of the sale. Your original holding period carries over to the replacement stock, so the exclusion clock keeps running where it left off. The catch is a strict 60-day window with no extensions, one more reason to map out your options well before a sale closes rather than scrambling afterward.

2. Gift minority stake at a discount

Under OBBBA, each individual can transfer up to $15 million ($30 million per married couple) during life or at death without paying federal gift or estate tax. Owners can stretch the limit by gifting minority interests well before the company goes to market. Because minority interests in private companies lack liquidity and marketability, appraisers can apply valuation discounts. This allows owners to transfer significantly more equity value under the $15 million lifetime exemption before a sale takes place.

The catch is you want to make that gift before there’s any sort of offer or LOI (letter of intent). If you gift or transfer shares after a sale process is underway, you invite the IRS to challenge your valuation.

3. Donate appreciated stock

Charitable giving offers another early-planning win, but the same timing trap applies. By donating private shares, donors can avoid capital-gains tax on the appreciation and claim an income-tax deduction. As with gifting minority stakes, the key is to act before any offer or letter of intent is on the table: wait too long and the IRS may treat the transaction as a deemed sale rather than a gift.

It’s also worth thinking carefully about which shares you donate and how many. Handing a nonprofit a large block of voting shares can give it a say in how the business is run, so many owners donate nonvoting stock or cap the gift at a minority position to keep control where it belongs.

4. Relocate to a tax-friendly state

Changing your residency for tax purposes is far harder than simply spending more than half the year somewhere new. Instead, you have to show you’ve genuinely cut ties with the old state. Continuing to own a home or run a business there makes it harder to prove you’ve changed your domicile. It isn’t necessarily a dealbreaker, but state tax authorities weigh a wide range of factors, so the details matter. Things to consider include your driver’s license, voter registration, club memberships, and primary-care physician(s) in your new state.

The bottom line

Nearly every strategy here shares one requirement, planning ahead. QSBS planning, discounted gifting, charitable donations, and residency changes all lose their power, or draw IRS scrutiny, once a deal is in motion. The owners who keep the most of their sale are the ones who started planning years before they signed. If a sale is anywhere on your horizon, the best time to begin is now.

Disclaimer: The information provided herein is intended solely for informational purposes and no person(s) or other third-party may rely upon it as financial, tax, or legal advice or use it for any other purposes. As a result, Royal Financial, and any affiliates, assume no responsibility whatsoever to readers, or any other persons for that matter, as a result of the information contained herein.