Start 2-3 years before your target close if possible, with serious planning no later than 12 months before signing an LOI. The pre-sale window is where the most valuable tax and wealth-transfer strategies are executed, most require time that can't be compressed after the deal is signed. Waiting until after closing leaves significant money on the table.
The window between 'thinking about selling' and 'signing an LOI' is the highest-value planning window in the entire exit process. Once you sign an LOI, you're in exclusivity, the deal structure is largely set, and most pre-sale tax strategies are no longer available. If you start planning after closing, nearly all of them are off the table.
Two to three years out: this is when you can execute multi-year strategies. Pre-sale Roth conversions during years when business income may be lower allow you to move money from taxable to tax-free accounts before the sale proceeds push you into the highest bracket for years. Gifting strategies, transferring appreciated interests to family members or trusts before the sale, move future gain out of your estate at lower transfer-tax cost. These strategies take time.
Twelve months out: this is the last practical window for entity restructuring, S-corp elections that affect deal structure, setting up a donor-advised fund to receive pre-sale contributions, or establishing a Charitable Remainder Trust. All of these require time to execute properly and can't be rushed in the weeks before a closing.
After signing the LOI: your focus shifts to protecting what's already set. Coordinate your financial advisor, CPA, and transaction attorney to ensure the purchase price allocation, deal structure, and rollover equity (if any) are optimized within the constraints of the signed deal. After closing, focus on tax payments, income planning, and investment deployment.
Key facts
- Pre-sale gifting of business interests is most effective 2+ years before sale to allow for valuation discounts and gift tax annual exclusions to compound
- Charitable Remainder Trusts require time to establish and fund before the sale, once the sale is pending, the CRT strategy becomes much harder to execute
- S-corp elections, if needed for deal structure, have timing requirements (the election must be in place at the start of the tax year)
- The LOI exclusivity period is typically 30-90 days, there's almost no planning time between LOI signing and closing
- Tax estimated payments may be due within the quarter of closing, your CPA should model this in advance
What if I'm already in due diligence, is it too late?
No, but your options narrow significantly. Inside due diligence, the deal structure is largely fixed. We can still optimize the income plan, coordinate with your CPA on the tax filing strategy, plan the deployment of proceeds, and ensure your estate plan is updated for your post-sale balance sheet. The gains from early planning are gone, but there's still meaningful work to do.
Can I sell my business and do a 1031 exchange on the real estate?
If your business owns real estate separately from the operating business (as many do), you may be able to sell the operating business and separately execute a 1031 exchange on the real estate, deferring capital gains and depreciation recapture on the property into a replacement property. This requires the real estate to be titled and sold separately from the operating business assets. Timing and structure are critical.
