Selling your communications agency can be a major milestone. After years of building relationships and delivering great work, you deserve to maximize the value of your exit. But before closing the deal, it’s important to understand a key factor that affects your net proceeds: taxes.

Taxes on selling a communications agency can be complex. The earlier you plan, the better prepared you’ll be to keep more of what you’ve earned.

This guide explains the tax basics every founder should know so you can navigate your sale confidently and avoid surprises at closing.

Why taxes matter

The sale price is just the beginning. The structure of your deal, your business entity, and how the IRS categorizes your proceeds will all affect how much you actually take home.

Planning ahead can help reduce your tax bill and give you more flexibility when negotiating terms.

Asset sale vs. stock sale

How your sale is structured will drive the tax impact. The two most common structures are:

  • Asset sale: You sell individual assets like client contracts, goodwill, and equipment. Buyers often prefer this option because they can write off assets and limit liability. For sellers, asset sales can trigger higher taxes since different asset types are taxed differently.

  • Stock sale: You sell your ownership shares. This structure is typically better for sellers because it often qualifies for long-term capital gains rates, which are lower than regular income tax rates.

Understanding these differences helps you negotiate a structure that works for both parties.

Capital gains tax rates

Founders generally want their sale proceeds taxed at the long-term capital gains rate. These rates are much lower than ordinary income tax rates.

  • Long-term capital gains: These apply when you’ve owned the business for more than one year. Federal rates are typically 15% to 20%.

  • Short-term capital gains: These apply if you’ve owned the business for less than a year. They are taxed at your ordinary income rate, which can be as high as 37%.

Most agency owners will qualify for long-term capital gains, but there are exceptions. For example, any payments tied to personal services or a non-compete agreement may be taxed at higher rates. Knowing this early helps you plan.

Allocating the purchase price

In an asset sale, the buyer and seller must agree on how to allocate the purchase price among different asset types. The IRS taxes these assets differently.

Here’s what you need to know:

  • Tangible assets like equipment can trigger depreciation recapture, taxed as ordinary income.

  • Intangible assets like goodwill typically qualify for long-term capital gains rates.

  • Non-compete agreements may be taxed at ordinary income rates.

This allocation is negotiable, so work with your advisor to find a fair structure that minimizes your tax exposure.

State tax considerations

Where you live and where your agency operates will also affect your tax bill. Some states, like California and New York, tax capital gains at the same rate as ordinary income. Others, like Florida and Texas, have no state income tax.

It’s important to factor state taxes into your planning so you can forecast your net proceeds accurately.

Earn-outs and installment payments

Many deals include payments made over time, such as earn-outs or installment plans. Each of these has unique tax implications.

  • Earn-outs: If structured properly, these can qualify for capital gains treatment. However, they’re taxed in the year you receive them.

  • Installment payments: Installment sales spread your tax liability over multiple years, which may help you manage your total tax burden.

Discuss these structures with your advisors before you finalize deal terms.

Your agency’s legal structure matters

The legal structure of your agency will determine how taxes apply at closing.

  • C corporations may face double taxation in asset sales. The company pays tax at the corporate level, and you pay tax again when you receive the after-tax proceeds.

  • S corporations, partnerships, and sole proprietorships typically avoid double taxation and pass income directly to the owners.

If your agency is a C corporation, consider your options early. In some cases, converting to an S corporation before a sale could help reduce taxes, though this comes with its own rules and timelines.

Plan ahead to avoid surprises

The key to managing taxes on selling a communications agency is preparation. When you understand the basics, you’ll know what questions to ask your advisors.

Work with a tax professional, accountant, and M&A advisor early in the process. They can help you:

  • Model out tax scenarios based on different deal structures

  • Review your entity type and suggest adjustments

  • Structure your sale for the best after-tax outcome

Starting this conversation before you list your agency gives you more control and reduces last-minute surprises.

Conclusion

Taxes on selling a communications agency can significantly impact your net proceeds. The structure of your deal, the allocation of your purchase price, your legal entity, and where you and your agency are located all play a role.

The good news is that with proactive planning and the right advisory team, you can manage your tax obligations and keep more of what you’ve earned.

You’ve built something valuable, and thoughtful planning ensures you’ll enjoy the rewards when it’s time to exit.