Taxes on Selling a Web Design Firm: What to Expect

Selling your web design firm is an exciting milestone. It’s the reward for years of hard work, creativity, and building client relationships. But before you get to celebrate a successful sale, there’s one important topic that deserves your attention: taxes.

Understanding taxes on selling a web design firm helps you avoid surprises and ensures you walk away with the best possible outcome. The good news? With early planning and the right guidance, navigating the tax side of your exit doesn’t have to feel overwhelming.

In this guide, we’ll walk you through what to expect so you can approach your sale confidently and maximize what you keep after closing.

Why taxes matter when you sell your business

Many founders focus on the sale price as the headline number. But what really matters is your net proceeds — the amount you actually take home after taxes.

Depending on how your deal is structured, your business entity type, and where you live, your tax liability can vary significantly. Planning ahead helps you optimize the structure of your sale and minimize your tax burden.

Asset sale vs. stock sale: What’s the difference?

The structure of your deal plays a big role in how taxes apply. Most transactions for small service businesses fall into one of two categories:

Asset sale

In an asset sale, you sell individual assets of the business — think client contracts, goodwill, intellectual property, equipment, and more. Buyers often prefer asset sales because they can “step up” the value of assets for tax purposes and reduce their liability exposure.

However, for sellers, asset sales can lead to a mix of tax treatments. For example:

• Some assets may qualify for capital gains treatment.

• Others, like equipment that has been depreciated, may trigger ordinary income tax on depreciation recapture.

• Payments allocated to non-compete agreements or consulting services are also taxed as ordinary income.

This mix can increase your overall tax rate on the sale.

Stock sale

In a stock sale, you sell your ownership shares in the company itself. For sellers, this is typically more favorable for tax purposes, because most of the proceeds qualify for long-term capital gains tax rates, which are lower than ordinary income tax rates.

Buyers, however, may prefer asset sales because they avoid inheriting liabilities tied to the entity. Negotiating this structure carefully is key.

Capital gains tax rates

In most cases, founders who have owned their web design firm for over a year will qualify for long-term capital gains tax rates, which are significantly lower than ordinary income tax rates.

Here’s what that means:

• Long-term capital gains: Generally taxed at 15% to 20% at the federal level, depending on your total income.

• Short-term capital gains: If you’ve held assets for less than a year, gains are taxed at your ordinary income tax rate, which can be as high as 37%.

If your deal includes payments for services or non-compete agreements, those portions of the proceeds may also be taxed at ordinary income rates.

Allocating the purchase price matters

In an asset sale, the total purchase price is allocated across different asset classes, and that allocation affects how much tax you’ll pay.

Common categories include:

• Tangible assets: Equipment or hardware. Depreciation recapture rules may apply here, resulting in some ordinary income tax.

• Intangible assets: Goodwill, customer lists, or intellectual property typically qualify for capital gains treatment.

• Non-compete agreements or consulting services: Taxed as ordinary income.

This allocation is negotiable between you and the buyer and should be carefully structured to reduce your tax burden while still meeting buyer requirements.

Don’t forget about state taxes

Federal taxes are just part of the picture. Many states also impose income taxes on sale proceeds.

For example:

• States like California and New York tax capital gains at the same rate as ordinary income.

• Other states, like Texas and Florida, have no state income tax.

Where your business is located and where you reside will both affect how much you owe. It’s worth running projections early so you know what to expect.

Earn-outs and installment sales: Special tax considerations

If part of your deal is structured as an earn-out (payments tied to future performance) or as an installment sale (payments spread over multiple years), you may face different tax treatment.

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

• Installment sales: Spread your tax liability over multiple years, which can help smooth your overall tax rate and reduce the immediate burden.

These structures can be helpful for both buyers and sellers but should be planned carefully to ensure favorable tax treatment.

Your business entity type makes a difference

The legal structure of your business also affects taxes on the sale.

• S-corporations, partnerships, and sole proprietorships: Generally taxed once at the owner level when the sale occurs.

• C-corporations: May face double taxation in an asset sale scenario — once at the corporate level and again when proceeds are distributed to shareholders.

If you operate as a C-corporation, it’s worth consulting a tax professional early to explore ways to minimize double taxation or consider whether a stock sale structure is possible.

Plan early for better outcomes

The biggest tax mistake founders make? Waiting too long to think about taxes. The structure of your deal will determine how much you actually keep, so proactive planning gives you more flexibility and better options.

Before you go to market:

• Work with an experienced tax advisor who understands business sales.

• Model out different scenarios (asset sale vs. stock sale, installment payments vs. lump sum).

• Understand state and federal tax rates that apply to you.

• Be prepared to negotiate purchase price allocations with the buyer.

This upfront work means fewer surprises later — and a smoother, more rewarding exit.

Conclusion

Taxes on selling a web design firm can have a significant impact on your net proceeds, but they don’t have to feel overwhelming. By understanding key factors like deal structure, capital gains rates, purchase price allocations, state taxes, and payment timing, you’ll be better equipped to navigate the process with confidence.

The earlier you start planning and working with experienced advisors, the more control you’ll have over your outcome. Selling your business is a major achievement, and smart tax planning ensures you enjoy the rewards you’ve earned.