Net Proceeds Calculator
Estimate your after-tax proceeds from a business sale. Models Form 8594 asset allocation, Section 1245 recapture, federal LTCG, NIIT, and state taxes for both asset and stock sales.
Net Proceeds Calculator
Estimate after-tax proceeds from a business sale. Accounts for Form 8594 allocation, Section 1245 recapture, federal LTCG, NIIT, and state taxes.
1. Deal Basics
2. Form 8594 Asset Allocation
Allocate the purchase price across asset classes. Tax treatment differs by class. Total should equal purchase price.
Long-term capital gain for seller (usually zero basis)
Section 1245 recapture (ordinary income) up to depreciation taken; remainder is LTCG
Ordinary income for seller (valued at cost)
Ordinary income — treated as compensation
LTCG treatment assumed; real property may have §1250 recapture
Amount already depreciated — determines §1245 recapture vs. LTCG split
3. Tax Profile
Salary, K-1 distributions, other income this year
4. Deal Terms & Fees
Typical: 10–12% Main Street; 3–8% lower middle market. Fee is deducted pre-tax.
Deferred from cash at close; shown as contingent proceeds
Typical: 10–15% held 12–18 months for R&W indemnification
At-risk; taxed when received, not at closing
Disclaimer: This calculator provides rough educational estimates using 2025 federal brackets and approximate state rates. It does not account for all tax situations including AMT, QSBS exclusions (§1202), installment sale elections (§453), personal goodwill allocations, state-specific rules, or local taxes. Actual tax liability depends on your complete tax picture. Consult a CPA specializing in business sales before signing an LOI. A sell-side QoE and tax advisor review is the single highest-ROI pre-sale investment.
What Determines Your Tax Bill
Asset Sale vs. Stock Sale
Most SMB transactions under $5M are structured as asset sales. Buyers prefer asset sales because they get a stepped-up tax basis on the assets, allowing immediate depreciation deductions. Sellers generally prefer stock sales because:
- The entire gain is typically taxed at long-term capital gains rates (vs. ordinary income on recaptured depreciation)
- No Section 1245 recapture — sellers avoid ordinary income on depreciated equipment
- Liabilities stay with the entity and are assumed by the buyer
- Simpler closing process (fewer assignments needed)
Form 8594 Asset Allocation
In an asset sale, both buyer and seller must file Form 8594 with matching allocations across IRS asset classes. The allocation is a zero-sum negotiation — buyers want more in depreciable assets (faster write-offs); sellers want more in goodwill (LTCG treatment).
| Asset Class | Seller Tax Treatment | Buyer Treatment |
|---|---|---|
| Class I — Cash & equivalents | N/A | N/A |
| Class II — Marketable securities | LTCG | Carryover basis |
| Class III — Accounts receivable | Ordinary income | Deductible when collected |
| Class IV — Inventory | Ordinary income (COGS) | COGS deduction |
| Class V — FF&E / tangible property | §1245 recapture then LTCG | Depreciable (MACRS) |
| Class VI — §197 intangibles | LTCG (if held 1yr+) | 15-year amortization |
| Class VII — Goodwill / going concern | LTCG | 15-year amortization |
The Working Capital Peg
The working capital peg — the target level of net working capital the seller must deliver at close — is where $100K–$500K of value commonly moves post-LOI on a sub-$10M deal. The methodology belongs in the LOI, not the purchase agreement. Sellers should negotiate a “normalized” peg based on trailing 12-month averages and exclude cash from the working capital calculation.
Items This Calculator Does Not Cover
- QSBS / §1202 exclusion — up to $10M of C-corp gain may be federally tax-free if held 5+ years
- Personal goodwill — under the Martin Ice Cream doctrine, personal relationships can be sold separately at LTCG rates even in a C-corp asset sale
- Installment sale §453 — seller notes can spread gain recognition across the note term, reducing year-of-sale tax burden
- 338(h)(10) / F-reorganization elections — allow C-corp stock sales to be treated as asset sales for tax purposes, eliminating double taxation
- §1250 recapture — real property sold above depreciated basis triggers ordinary income on the depreciation portion
- State-specific rules — conformity to federal treatment varies significantly; some states have no preferential LTCG rate
- AMT — Alternative Minimum Tax may apply in some situations
Disclaimer
This calculator provides educational estimates only and does not constitute tax advice. Tax calculations depend on your complete financial situation and are subject to change. Consult a CPA or tax attorney specializing in business sales before making any decisions. A sell-side Quality of Earnings report and pre-sale tax planning consultation typically cost $15,000–$40,000 but routinely identify $100,000+ in tax savings and negotiation improvements.