When selling your membership website, valuation and buyer negotiations often take center stage. But what really determines how much you walk away with is what happens after the sale — when taxes come due.

At Merge, we help founders understand taxes on selling a membership website so they can prepare thoughtfully, structure deals properly, and protect their net proceeds.

Here’s what you should know.

Why Tax Planning Is Critical

Without early tax planning, even a well-negotiated deal can result in a disappointing net outcome.

Tax treatment depends on several factors:

  • How the sale is structured (asset sale vs. stock sale)

  • How proceeds are allocated across assets

  • Whether your business qualifies for capital gains treatment

  • Where your business operates and where you reside

A thoughtful approach can significantly reduce your tax liability and help you keep more of what you’ve earned.

Asset Sale vs. Stock Sale

The structure of your deal plays a major role in how it’s taxed.

Asset Sale

In an asset sale, the buyer purchases your company’s individual assets — such as your domain, intellectual property, and member list — rather than buying the entire entity.

  • For sellers, asset sales can trigger multiple tax treatments: some proceeds may qualify for long-term capital gains rates, while other portions (like depreciation recapture) may be taxed at higher ordinary income rates.

Buyers often prefer asset sales because they can allocate the purchase price to assets in ways that maximize their own tax benefits and reduce exposure to liabilities.

Stock Sale

In a stock sale, the buyer purchases your ownership shares and assumes the company as a whole.

  • Stock sales generally favor sellers: most or all proceeds qualify for long-term capital gains treatment, often taxed at 15%–20% at the federal level (plus applicable state taxes).

However, many buyers — especially for smaller businesses — are reluctant to pursue stock sales because they would inherit historical liabilities.

Capital Gains vs. Ordinary Income Tax Rates

A key goal is to ensure as much of the sale as possible is taxed at favorable long-term capital gains rates rather than at higher ordinary income rates.

  • Long-term capital gains rates: 15%–20% federally (plus a potential 3.8% net investment income tax for high earners)

  • Ordinary income rates: can be as high as 37% federally for top earners, plus state taxes

Some deal components — like earn-outs, consulting agreements, or certain allocations — may trigger ordinary income treatment unless carefully structured.

Purchase Price Allocation in Asset Sales

In an asset sale, how the purchase price is allocated among different asset categories affects your tax liability.

Common categories include:

  • Goodwill: typically taxed at capital gains rates

  • Intellectual property: usually capital gains, if held long-term

  • Equipment or assets subject to depreciation recapture: taxed as ordinary income

  • Non-compete agreements: ordinary income treatment

Because purchase price allocation is negotiable, it’s important to structure the deal thoughtfully and document agreements carefully.

State and Local Tax Considerations

Your state of residence and where your business operates also matter.

  • High-tax states like California and New York impose additional income tax on capital gains.

  • States with no income tax (like Florida or Texas) don’t add a state layer to federal capital gains tax.

If you have nexus (taxable presence) in multiple states, additional filings or apportionment may apply.

Timing and Installment Payments

In some cases, deals include installment payments or earn-outs spread over time.

  • Installment sales: taxes are paid as payments are received, which can help spread tax liability over multiple years and potentially reduce your marginal rate.

  • Earn-outs tied to performance: can sometimes result in portions taxed at ordinary income rates, depending on structure.

Understanding how timing affects your tax bill helps you prepare for cash flow and avoid surprises.

Qualified Small Business Stock (QSBS) Exclusion

If your membership website is operated as a C-corporation, you may qualify for a powerful federal tax benefit: the Qualified Small Business Stock (QSBS) exclusion.

  • The QSBS exclusion can exempt up to $10 million (or 10 times your original investment) from federal capital gains tax.

  • Requirements include holding stock for at least five years and operating in a qualified industry.

Not all businesses or founders qualify, but it’s worth evaluating early with a tax advisor.

Documentation and Preparation

Good preparation makes tax planning easier and due diligence smoother.

Before going to market:

  • Ensure financial statements align with tax filings

  • Document EBITDA adjustments clearly (e.g., owner salary, personal expenses)

  • Organize contracts, IP assignments, and ownership records

This preparation helps your advisors structure a deal that protects your interests and maximizes your net proceeds.

Why Work with Professional Advisors

Every deal is unique. Working with an M&A advisor, CPA, and tax attorney early in the process ensures that:

  • You understand how deal structure affects your tax liability

  • You negotiate from an informed position

  • Your records are complete and ready for diligence

  • You can plan for post-sale cash flow and obligations

At Merge, we work closely with founders to integrate tax planning into their exit strategy from the beginning.

Final Thoughts

Understanding taxes on selling a membership website gives you a crucial advantage when planning your exit.

By learning how deal structure, purchase price allocation, timing, state tax rules, and potential exclusions affect your net proceeds, you can avoid surprises and keep more of what you’ve built.

At Merge, we help founders prepare early, navigate negotiations carefully, and manage every detail — including tax considerations — to ensure a smooth, rewarding sale.