Pre-Exit Tax Planning | Wealth Protection Advisory

The 24-month window

Most pre-exit tax planning has to happen 12–24 months before a Letter of Intent. After the LOI, the universe of available strategies collapses — gifts become assignment-of-income, trusts cannot be established without grantor-trust contamination, and qualified-plan adoptions become administratively impossible inside a deal timeline.

Deal structure: stock vs. asset sale

Dimension	Stock sale	Asset sale
Seller tax	Capital gains (often QSBS-eligible if C-corp)	Mix of ordinary income, depreciation recapture, capital gains
Buyer preference	Lower (no asset step-up)	Higher (asset step-up, depreciation reset)
Liability transfer	All liabilities follow	Only specified liabilities
Common in	Larger transactions, C-corp founders	Smaller deals, S-corps, partnerships

QSBS work that must be done before LOI

Confirm C-corporation status from issuance.
Verify the gross-asset test was met at every issuance event.
Verify the active business test for every year of the holding period.
Establish non-grantor trusts and complete QSBS gifts at least 12 months out.
Order a QSBS opinion letter from outside tax counsel.

See our QSBS guide and stacking strategy for the mechanics.

Compressing wealth into qualified plans

The 24 months before sale are usually the highest-deduction-value years a business will ever have. Two moves dominate:

Designer DB Plus® — a custom cash balance + 401(k)/PS combo plan can deduct $300,000–$450,000 per owner per year. Two pre-sale years = $600K–$900K of deductible owner contributions.
§401(h) account — adds another $50K–$100K/year of medical-purpose deduction inside the DB plan.

Charitable structures: CRT, CLAT, DAF

Charitable Remainder Trust (CRT)

Contribute appreciated stock to a CRT before sale. The CRT sells the stock with no immediate capital gains tax, pays the seller a fixed annuity or unitrust amount for life or term, and the remainder passes to charity. The seller receives a partial charitable deduction at contribution.

Charitable Lead Annuity Trust (CLAT)

Pays an annuity to charity for a term, with remainder back to family. In low-rate environments a "zeroed-out" CLAT can transfer significant wealth to heirs gift-tax-free if the CLAT outperforms the §7520 hurdle rate.

Donor-Advised Fund (DAF)

Simplest tool. Contribute appreciated stock pre-sale; take the deduction in the high-income year; grant to charities over time. See our DAF guide.

Estate freeze and gifting before sale

Gifting equity before a value-establishing event (LOI, third-party valuation) locks in low gift values and shifts future appreciation out of the estate. Combined with QSBS stacking, this is one of the largest single estate-tax savings opportunities a founder will encounter.

Post-sale: the high-income year

Bunch 5–10 years of charitable giving via DAF in the sale year.
Realize loss positions in the same year to offset gain not sheltered by QSBS.
Make the maximum DB and §401(h) contribution for the final plan year.
Plan the post-sale Roth conversion ladder — proceeds rolled to an IRA become the next decade's conversion runway.

Frequently Asked Questions

When should I start pre-exit tax planning?

12 to 24 months before a Letter of Intent. After the LOI, most strategies — QSBS gifts, non-grantor trust funding, qualified plan adoptions — are either eliminated or substantially weakened.

Should I structure as a stock sale or asset sale?

Sellers typically prefer stock sales (single layer of capital gains tax, QSBS eligibility for C-corps). Buyers typically prefer asset sales (asset step-up, depreciation reset). The negotiation usually splits the tax benefit through purchase price.

Is it too late to add a cash balance plan in the year before sale?

No — a cash balance plan can be adopted retroactively for a tax year up to the business's tax filing deadline (with extensions) under SECURE 2.0. Two pre-sale years of contributions can produce $600K–$900K of owner deduction.

What is a CRT and when does it fit?

A Charitable Remainder Trust accepts appreciated stock pre-sale, sells it with no immediate capital gains tax, pays the donor a fixed annuity or unitrust for life or term, and passes the remainder to charity. Best fit when the donor wants long-term income, partial deduction now, and meaningful charitable intent.

Can I gift equity to my kids before the sale?

Yes, and the lower the value at the time of gift, the less of the lifetime gift exemption is consumed. The gift must occur before any binding sale agreement to avoid assignment-of-income challenges.

What is QSBS stacking?

Gifting QSBS shares to multiple non-grantor trusts — each a separate taxpayer with its own per-issuer cap — before sale, multiplying the §1202 exclusion across the family.

How do I handle the high-income sale year?

Bunch 5–10 years of charitable giving into a DAF, realize loss positions, make the final DB and §401(h) contribution, and pre-plan the post-sale Roth conversion ladder.

What if I'm an S-corp or LLC, not a C-corp?

QSBS does not apply, but the exit planning toolkit (cash balance, §401(h), CRT, CLAT, DAF, estate freeze) still applies. Consider whether converting to a C-corp 5+ years before sale is justified for the QSBS opportunity — the analysis is fact-specific.

Pre-Exit Tax Planning: The 24 Months Before You Sell Your Business