Among the first considerations, and perhaps the lengthiest, is the coming tax bill. Much of the windfall should be categorized as Long-Term Capital Gains and subject to a preferred tax rate, which in 2019 is capped at 20 percent.

Get an estimate of your tax liability from your accountant. Set those dollars aside in a short-term cash account. You’ll want to get some return on your funds, even if it is just one or two percent, before paying Uncle Sam, but you need to focus on preserving your capital and being liquid for this portion of the sale.

Freeze the value of the business, transfer the asset to a child, then sell it after it has appreciated in value. This avoids gift or It is an event every inheritance taxes on future appreciation. Most of this planning must be completed a couple of years in advance of the actual transaction.

Strategies include annual gifting of stock, an installment sale to an intentionally defective grantor trust, private annuities, Grantor Retained Annuity Trusts (GRAT), Charitable Lead Annuity Trusts (CLAT), and Family Limited Partnerships (FLP).

These are sections of the tax code that can be used as long as certain criteria are met. They include:

Section 1042 – A business owner can sell company stock to an ESOP (Employee Stock Ownership Plan) and defer federal, and sometimes state, tax on the transaction by rolling proceeds into a qualified replacement property (QRP). Leveraging the stepped-up basis at death can eliminate taxes on the sale of these assets later.

Section 1202 – Capital gains exclusion. Allows small business owners to exclude at least 50% of the realized gain on the sale or exchange of a qualified small business stock that is held longer than five years. This gain is limited to the greater of either $10 million or 10 times the basis in the stock.

Section 1045 – Rollover of gains. Allows the business seller to rollover the taxable gain of QSBS into another QSBS within 60 days of the sale. This defers recognition of the gains until the second QSBS is sold. This strategy is often combined with Section 1202, to partially monetize the small business.

Opportunity Zones – Any individual or entity with capital gains can roll capital gains into an Opportunity Zone. Benefits are the temporary deferral of taxes on previously earned capital gains, basis step-up of previous earned capital gains invested, and permanent exclusion of taxable income on new gains.

There are many deductions available to the owners of small businesses, but two strategies especially applicable in this situation are an IC-DISC (Interest Charge Domestic International Sales Corporation) and an INGT (Incomplete Gift Non-Grantor Trust). An IC-DISC enables exporters to convert ordinary income from sales to foreign unrelated parties into qualified dividend income (up to 50% of combined domestic and international income).

This allows international companies to convert ordinary income tax into capital gains tax, reducing their federal tax obligation and increasing the value of the business a buyer would be willing to pay.