Selling your creative agency is an exciting opportunity that can provide financial rewards and open doors for your next chapter. But before you celebrate, it’s important to understand that taxes will have a direct impact on how much you keep after the sale.

With thoughtful preparation and the right guidance, you can minimize surprises and maximize your net proceeds. This guide breaks down what every founder should know about taxes on selling a creative agency so you can plan ahead and exit confidently.

Why Tax Planning Matters

Many founders spend most of their time focusing on getting the best offer. That’s understandable — but your sale price is only part of the equation. What really matters is how much you keep after taxes.

Tax treatment depends on several factors, including deal structure, your legal entity, where you live, and how payments are received. By planning ahead, you can significantly improve your after-tax result.

Deal Structure Drives Tax Outcome

The way your sale is structured will largely determine how your proceeds are taxed. The two most common structures are asset sales and stock sales.

Asset Sale:
In an asset sale, the buyer purchases individual assets of your agency such as goodwill, contracts, intellectual property, and equipment. Buyers often prefer asset sales because they get tax benefits from depreciating the assets they acquire.

For sellers, this structure can mean different portions of the sale are taxed differently. For example, goodwill may be taxed at favorable capital gains rates, while equipment or consulting agreements might be taxed as ordinary income.

Stock Sale:
In a stock sale, the buyer purchases your ownership interest in the company. Sellers generally prefer stock sales because the entire sale amount may qualify for capital gains tax treatment, which is taxed at lower rates than ordinary income.

Understanding which structure applies and how it affects your tax outcome helps you negotiate terms that meet your financial goals.

Capital Gains vs. Ordinary Income Tax Rates

The distinction between capital gains and ordinary income matters because these categories are taxed at different rates.

  • Long-term capital gains are typically taxed at 15% or 20%, depending on your income level.

  • High earners may also pay a 3.8% net investment income tax.

  • Ordinary income is taxed at rates up to 37% federally, plus any applicable state taxes.

The goal is to have as much of the sale as possible taxed as long-term capital gains. However, some elements of the deal, such as payments for consulting services or non-compete agreements, may be taxed as ordinary income.

Purchase Price Allocation Matters

In asset sales, you and the buyer must agree on how the total purchase price is allocated across various asset categories. This allocation directly affects your tax liability.

For example:

  • Amounts allocated to goodwill and intangible assets are typically taxed at favorable capital gains rates.

  • Amounts allocated to equipment or consulting agreements can trigger higher ordinary income tax rates.

Purchase price allocation is negotiable, so working with a tax advisor during deal structuring can help minimize your tax burden.

State and Local Tax Impact

Your state of residence plays a big role in your total tax bill. Some states, like California and New York, impose high personal income tax rates. Others, like Florida and Texas, have no state income tax at all.

Where you live at the time of sale determines how much you pay in state taxes. If you are considering a relocation before selling, you need to establish residency well in advance and understand the rules your state applies to taxing income from business sales.

Qualified Small Business Stock (QSBS) Exclusion

If your creative agency is a C-corporation, you may qualify for the Qualified Small Business Stock (QSBS) exclusion under Section 1202 of the Internal Revenue Code.

This exclusion allows eligible founders to exclude up to $10 million (or 10 times their investment) of gain from federal income taxes when they sell shares of qualified stock they have held for at least five years.

Not all businesses or shareholders qualify, and planning for QSBS eligibility must happen years before a sale. If you think this may apply to you, consult a tax advisor early to determine your eligibility.

Installment Sales and Earn-Outs

Many creative agency sales involve payments made over time. How those payments are structured also affects your taxes.

Installment Sales:
In an installment sale, you receive payments over multiple years and pay tax as you receive the proceeds. This can spread your tax liability over time and potentially lower your overall tax rate in any one year.

Earn-Outs:
Earn-out payments, which depend on future performance, have their own tax implications. If the earn-out is tied directly to agency results, it may qualify as capital gains. If it requires your continued involvement, it could be taxed as ordinary income.

Understanding these details helps you structure payments in a way that meets your financial and tax planning goals.

Documentation and Clean Financials Help

Tax planning isn’t just about deal structure. Well-prepared documentation also reduces risk, builds buyer confidence, and ensures that your financial performance aligns with tax reporting requirements.

Before you go to market, ensure your financials are organized, accurate, and complete. Buyers will examine these records carefully, and clean documentation supports smoother negotiations and tax reporting.

Planning Ahead Pays Off

The earlier you start thinking about taxes, the more options you have to optimize your outcome. Steps you can take today include:

  • Reviewing your legal entity structure

  • Understanding capital gains vs. ordinary income treatment

  • Identifying opportunities for recurring revenue that improve valuation and stability

  • Exploring whether you may qualify for QSBS

  • Organizing clear, detailed financial records

Working with a tax advisor and an experienced M&A advisor ensures that your tax planning aligns with your sale process.

Final Thoughts

Selling your creative agency is a proud milestone, but your success depends not just on the sale price but on how much you keep after taxes.

By understanding taxes on selling a creative agency and preparing early, you can minimize tax burdens, reduce surprises, and maximize your after-tax proceeds.

At Merge, we help founders think ahead so they can exit confidently and on their terms. Whether you are exploring a sale soon or just starting to plan, we’re here to help you prepare, connect with the right advisors, and achieve your goals.