The situation
David S. is a 60-year-old founder of a manufacturing supplies distribution business based in Glenview. Over twenty-two years he had built it from a single warehouse into a regional operation with $9 million in revenue and roughly $2 million of EBITDA. He had two adult children, neither of whom wanted to run the company, and he had been quietly fielding inbound interest from regional buyers and a small private equity group for about a year.
When he came to us, he was eighteen months out from what he assumed would be a transaction. He had a verbal range of $7.5M to $8.5M from one strategic buyer, his CPA had run rough numbers showing a federal tax bill in the high six figures, and his attorney was starting to draft an LOI. He was, in his own words, "trying to figure out what I'm actually walking away with."
The challenge
The default path looked like this: a stock sale at $8M, all proceeds taxed as long-term capital gains in a single year, federal LTCG plus the 3.8% net investment income tax, plus Illinois at 4.95%. That alone is roughly $2.3M of tax on $8M of proceeds. But the real problem was concentration: David had everything in this one event. No prior Roth balances, an IRA he'd been ignoring, no charitable structure, and a wife who wanted to fund a donor-advised fund for the church and a few causes she cared about but had never gotten around to it.
Worse, the buyer's draft LOI lumped goodwill, non-compete, and consulting into one number. That mix is enormously consequential at tax time. Roughly $2M of the deal was attributable to personal goodwill, the customer relationships David had built personally, separable from the corporate entity, and treating it as personal goodwill versus corporate goodwill in a C-corp could swing the tax bill by hundreds of thousands of dollars.
We had eighteen months. That sounds like a lot. It's barely enough.
Our approach
First we restructured the deal mechanics with David's M&A attorney. We separated personal goodwill from the entity sale and documented the customer-relationship case so it would survive scrutiny. That alone moved a meaningful slice of proceeds from a double-tax C-corp track to a single-layer capital gain at David's level.
Second, we structured the transaction as an installment sale for a portion of the proceeds, roughly $2.5M of the $8M paid out over four years. This deliberately deferred recognition into years where David would have lower other income. We modeled each year's bracket including the NIIT cliff and Illinois. The installment piece alone shaved about $90K off the lifetime tax.
Third, in the year before close. David's last high-income year, we executed a Roth conversion of his $480K IRA. Counterintuitive on its face: deliberately recognize income now? Yes, because the marginal cost of that conversion at his current bracket was lower than the cost of those dollars compounding inside an RMD-bound account for thirty years. We modeled it across three scenarios and the Roth path won in every one.
Fourth, we built a donor-advised fund. David and his wife funded it with appreciated stock from his outside portfolio in the year of close, taking the deduction at peak income, then granting it out over the following decade at their pace. The DAF gift offset roughly $400K of ordinary income from the deal in the year it was needed most.
Through all of this we coordinated weekly with his CPA and quarterly with his attorney. The sequence mattered. Every step had to land in the right calendar year for the brackets to work. This is why eighteen months is barely enough, there are tax years that have to be lived through, not just modeled.
The outcome
The deal closed at $8.05M last spring. The combined federal, Illinois, and NIIT bill came in at roughly $1.96M against a no-plan baseline of $2.30M. David kept an additional $340K, about 4.2% of the deal, that would otherwise have gone to taxes that were entirely legal but entirely avoidable.
More importantly, his post-sale portfolio is structured for his actual retirement: a paid-off home, a Roth bucket for tax-free growth, a taxable bridge account for ages 60-72, the installment note providing predictable income through 67, and the DAF letting his wife fund her giving on her schedule.
The takeaway
The tax savings on a business sale are made or lost in the eighteen months before close, not at close. By the time you've signed the LOI, most of the biggest moves are off the table. The CPA does the return; the planner sets up the year. They're different jobs and you need both, working together, well before the deal heats up.