If you’ve experienced a successful exit from selling your business, stepping away from appreciated stock, or cashing in on a real estate deal, you’ve likely had a well-earned gain. But you also know what comes next: taxes. Specifically, capital gains taxes that can claim a significant portion of your profit.
In my years of working with clients, I’ve found that if you’re proactive, there are smart, legal ways to reduce capital gains taxes and keep more of what you’ve built. Whether you’re a business owner or veteran investor, there are strategies that can help you structure your next move more tax-efficiently.
1. Defer and Control With an IRC 453 Deferred Installment Sale
If you’re facing a large taxable gain from selling a business, investment property, or stock, a 453 deferred installment sale can help you control when and how you recognize those gains.
For a 453 deferred installment sale, instead of selling the asset directly, you sell it to a trust in exchange for a promissory note. The trust then sells the asset to the buyer and holds the proceeds. You receive payments over time based on the terms of the note. You only pay capital gains tax as you receive those payments.
Some of the benefits include:
- Deferral of capital gains taxes, possibly over decades.
- Investment flexibility, as the trust can reinvest proceeds in a diversified portfolio, including real estate or securities.
- The ability to control the pace and tax impact of your distributions.
453 deferred installment sales are complex and require expert setup. If you have sales above $1 million, you may want to consider them as an option. They can help you preserve wealth and manage cash flow after an investment exit.
2. Exclude Gains With Qualified Small Business Stock (QSBS)
If you’re a founder, early-stage investor, or startup executive, you may be eligible for Qualified Small Business Stock (QSBS). Based on Section 1202 of the IRS code, you can exclude up to 100% of capital gains on QSBS. This can be up to $10 million or 10 times your investment, whichever is greater.
To qualify, the stock will need to meet the following criteria:
- Be in a domestic C-corporation with less than $50 million in assets at the time of issuance.
- Be acquired directly from the company (not the secondary market).
- Be held for at least five years before the sale.
If you’re planning to exit your startup or take chips off the table, understanding your QSBS eligibility can mean the difference between paying millions in tax or none at all. And if your stock is already worth more than the QSBS cap, you may consider gifting shares across multiple trusts or family members to multiply the benefit.
3. Structure Private Equity Investments for Long-Term Efficiency
When you invest in private equity, the way you structure the deal can have significant tax implications. To reduce capital gains taxes, you may be able to invest in entities like family limited partnerships or trusts. These can help you control timing and distributions.
You might also consider negotiating for carried interest treatment if you’re actively involved in management, potentially converting income into lower-taxed long-term capital gains.
Partnering with fund managers who offer tax-aware exit planning, including installment-based exits or 453 deferred installment sale integration at the fund level.
Private equity offers more than high returns—it also opens the door to creative tax planning. You don’t just want a profitable exit; you want a tax-efficient one.
It’s Not Just What You Earn—It’s What You Keep
You’ve built something valuable. You’ve taken risks and made wise investments. Now it’s time to protect those gains. With proactive planning and sophisticated tools like 453 deferred installment sales, QSBS exclusions, and private equity structuring, you can reduce capital gains taxes while preserving flexibility, cash flow, and long-term wealth.
The key? Don’t wait until after the sale. Build your team of tax and legal advisors now—and put yourself in control of the outcome.
Originally posted on Forbes.com
Matt Chancey is a Registered Representative of Realta Equities, Inc Member FINRA/SIPC and an Investment Advisory Representative of Realta Investment Advisors, Inc. Neither Realta Equities, Inc,. or Realta Investment Advisory are affiliated with Tax Alpha Companies, Including Tax Alpha Title and Tax Alpha Solutions. Realta Wealth is a trade name for the Realta Companies co-located at 1201 N Orange Street., Suite 729 Wilmington, DE 19801.
Realta Wealth is the trade name for the Realta Wealth Companies. The Realta Wealth Companies are Realta Equities, Inc., Realta Investment Advisors, Inc., and Realta Insurance Services, which consist of several affiliated insurance agencies. Securities are offered through Realta Equities, Inc., member FINRA/SIPC and Investment Advisory Services are offered through Realta Investment Advisors, Inc., a US SEC Registered Investment Advisor co-located at 1201 N. Orange St., Suite 729, Wilmington, DE 19801.
This material is for informational purposes only and does not constitute investment, tax, or legal advice. All investments involve risk, including loss of principal, and past performance is not indicative of future results. Examples provided are hypothetical and do not guarantee future outcomes. Tax strategies discussed may not be suitable for all investors; consult a qualified tax professional regarding your situation. This is not a recommendation or solicitation to buy or sell any security or strategy.
Investments discussed may be speculative, illiquid, and involve a high degree of risk, including the possible loss of principal. Such investments are generally available only to qualified or accredited investors.