David, Small Business Sale at 65

The people in these stories are composites. The situations are real, drawn from work I’ve actually done, but the names and identifying details are blended so no client is recognizable. David is one of those composites.

David built a specialty manufacturing business outside the city over thirty years. At 65 he had a buyer, a number with a comma he’d never seen in his own name, and one problem that kept him up at night. The capital gains tax on the sale was going to be enormous. So he started shopping for ways to make it smaller, and that’s when he nearly made the worst decision of his financial life.

The tax tail wagging the dog

A broker had shown David a structure that would defer most of the tax. It involved locking a large chunk of his proceeds into an illiquid vehicle for years. On paper the tax savings looked huge. David was ready to sign.

I asked him one question. “If you need that money in three years, can you get it?” He couldn’t. Not without penalties that would eat most of what he’d saved.

This is the trap I see again and again with people facing a liquidity event. The tax bill is real and it stings, so the whole brain narrows down to one job: shrink the tax. And in the rush to dodge a tax you’re certain about, you take on a risk you haven’t thought about. David was about to swap a liquid pile of cash for an illiquid promise, and call it smart because it saved on taxes. I don’t manage money for people who can live forever. Locking up a 65-year-old’s life savings to defer a tax is the tax tail wagging the dog.

What the tax actually was

Here’s the thing about the tax David was so afraid of. Most of the gain on his business qualified for long-term capital gains rates, not ordinary income rates. For 2026, the top long-term capital gains rate is 20%, and it only applies above $613,700 of taxable income for a married couple filing jointly. Below that, much of the gain sits in the 15% bracket.

Twenty cents on the dollar, at the top, on the largest payday of his life. That’s not nothing. But it’s a known, one-time, survivable cost. The illiquidity he was about to accept to avoid it was an unknown, open-ended risk. When you can name the price of one path and you can’t name the price of the other, that tells you something.

What we actually did

We didn’t chase the exotic structure. We did three plainer things.

First, we looked at spreading the sale where the deal allowed, so not every dollar of gain landed in a single year and got taxed at the top. Smoothing income across years is the heart of capital gains harvesting, and it’s boring on purpose.

Second, David is genuinely charitable. He gives to his church and two local causes every year. We looked at a charitable remainder trust for a slice of the business interest, which can soften the tax on the sale and turn part of the proceeds into an income stream while supporting the causes he cares about anyway.

Third, and most important, we kept the bulk of his money liquid. Cash and marketable securities he can actually reach. Because the real risk for a newly retired business owner isn’t the tax rate. It’s having a fortune on paper that you can’t touch when life surprises you.

There’s real work in sequencing a sale like this well, and it pays to plan it before the deal closes, not after. The moves on the way out of selling a business at retirement are mostly about timing and liquidity, not magic.

David sold, paid a tax he could see coming, and kept his money where he could get to it. The tax was the small part. The real prize was walking away from thirty years of work with a fortune he actually controlled.