The Tax Clock Is Running. Business Owners Thinking About Selling Should Know What Happens in 2028.
The Tax Clock Is Running. Business Owners Thinking About Selling Should Know What Happens in 2028.
If you are considering selling your business in the next few years, the timing of your transaction has a direct impact on how much of the proceeds you actually keep. That is not a new observation. What is worth paying attention to right now is the specific window that M&A advisors are flagging for lower middle market sellers.
The recommendation showing up consistently across transaction advisory firms: owners who are planning a sale should target closing before Q2 of 2028. Here is why that date matters and what it means for how you think about your timeline.
The Capital Gains Picture
Most business sales in the lower middle market are structured as asset sales or treated as capital gains at the federal level. For owners who have held their businesses for more than a year, the applicable rate is the long-term capital gains rate, which currently sits at 20% for high earners, plus the 3.8% net investment income tax where applicable.
The concern is what happens to those rates after the current policy environment shifts. Tax legislation is inherently unpredictable, but multiple advisory sources tracking Washington are flagging meaningful risk of capital gains rate increases in the 2027 to 2028 timeframe. If long-term capital gains rates increase by 5 to 10 percentage points, the after-tax proceeds from a $5 million sale change by $250,000 to $500,000. On a $10 million transaction, that is $500,000 to $1 million. That is not a rounding error.
None of this is certain. Tax rates are set by legislation, not by prediction. But the practical advice that experienced transaction advisors are giving lower middle market sellers right now is consistent: if you are seriously considering a sale, structure your timing so you close before Q2 2028, not after.
State Taxes Add Another Layer
Federal capital gains rates are only part of the picture. If you are selling a business in a state that taxes capital gains as ordinary income, the combined effective rate on your proceeds is already substantially higher than the federal number alone. Tennessee has no individual income tax on capital gains, which is one reason the Nashville and broader Southeast market is attracting owner-operators from higher-tax states. But if your business is structured with entities in multiple states, or if you have relocated recently, the residency analysis matters significantly.
The tax structure of the deal itself also matters. An asset sale versus a stock sale, an installment note versus a full cash-at-close, qualified opportunity zone investments with sale proceeds, and ESOP structures all carry different tax implications. These are decisions made well before the transaction closes, not at the closing table. If you are 18 to 36 months from a potential sale and you have not had a detailed conversation with a tax advisor about structure, that conversation is overdue.
Tax structure should be part of your exit plan, not an afterthought. Icon works with M&A attorneys and tax advisors as part of every engagement to make sure deal structure does not create avoidable tax exposure. Schedule a conversation or call (615) 931-0001.
What a Real Timeline Looks Like
Working backward from a Q1 2028 close target, a business owner needs to begin their engagement with an M&A advisor no later than early 2027. The transaction process itself, from advisor engagement to close, typically takes eight to twelve months in today’s environment. Add another 12 to 18 months of pre-process preparation before that, and the planning window opens right now.
Preparation means getting your financials normalized, reducing owner dependence, documenting operations, and addressing any structural or legal issues that would surface in diligence. None of that work happens overnight. And none of it can be accelerated by wanting the transaction to close faster once you are in process.
The Decision You Are Actually Making Right Now
Business owners tend to think of a sale decision as a single moment. It is not. It is a series of smaller decisions made over time, each of which either preserves or eliminates options. The decision to start preparing now keeps the 2027 to 2028 window open. The decision to wait another year may close it.
You do not have to be certain about selling to benefit from the preparation. The work you do to make your business buyer-ready also makes it run better, reduces your personal risk exposure, and builds the kind of operational foundation that serves you whether you sell or not. Starting the process is not a commitment to sell. It is a commitment to having options.
For a detailed look at tax structures available to lower middle market sellers, see How to Sell Your Business and Keep More of It: 5 Tax Structures Explained. To understand what your business is worth today and what would need to change to maximize that number, start with Icon’s business valuation service.
