Selling your PR agency is a major financial event, and taxes can dramatically impact the dollars you walk away with. That’s why understanding taxes on selling a PR agency early on can help you avoid costly surprises and keep more of your hard‑earned proceeds.

At Merge, we support founders in structuring deals that make tax sense and preparing for the full financial consequences of an exit. This guide covers everything you need to know—from deal structure to state taxes and planning tactics.

Why Taxes Matter

  • Taxes can consume 20–50% of your sale proceeds, depending on structure and residency

  • Not all income is taxed the same: capital gains, ordinary income, depreciation recapture—that mix matters

  • With smart planning, you can influence how much tax you owe and maximize your after‑tax payout

Step 1: Know Your Entity Type

The way your agency is set up influences how it’s taxed when you sell:

LLC or S‑Corp (pass‑through entities)
• Sale proceeds typically flow through and are taxed as long‑term capital gains for goodwill
• Portions tied to consulting agreements, equipment, or goodwill may carry different rates

C‑Corp
• Offers potential tax advantages like QSBS (Qualified Small Business Stock) if eligibility criteria are met
• Risk of double tax—corporate and shareholder levels

✅ Action step: Confirm your entity type and ask your CPA how that affects taxes on selling a PR agency.

Step 2: Asset Sale vs. Stock Sale

This is one of the main tax levers in any exit:

Asset Sale (common in smaller agencies)

  • Goodwill is taxed as capital gain

  • Depreciable items (like equipment) may trigger recapture taxed as ordinary income

  • Non‑compete and consulting agreements often treated as ordinary income

Stock Sale (seller‑preferred)

  • Typically allows for long‑term capital gains treatment on the full sale

  • Buyers may resist if they’re taking on liabilities

💡 Merge tip: Push for a stock sale when possible. Otherwise, negotiate asset allocation with your tax advisor to minimize ordinary‑income exposure.

Step 3: Capital Gains vs. Ordinary Income

Understanding the split is critical:

Type of Income Tax Rate
Long‑term capital gain 15%–20%, plus 3.8% NIIT
Ordinary income Up to 37%

Payout allocation matters. Don’t assume all proceeds receive capital gains treatment.

Step 4: Qualified Small Business Stock (QSBS)

If you’re in a C‑Corp:

  • You might qualify for QSBS and exclude up to $10M or 10× basis from federal capital gains

  • To qualify:
    • Must be C‑Corp
    • Assets under $50M at issuance
    • Active business operations
    • Shares must be held 5+ years

🏆 Real‑world win: A founder saved millions through QSBS. Ask your advisor whether early conversion makes sense.

Step 5: Earn‑Outs & Installment Sales

Deferred payments raise important tax issues:

  • Earn‑outs: Taxed when received—can be capital gain or ordinary income depending on terms

  • Installment sales: Allow you to spread gains across several years, smoothing tax impact

Plan in advance how earn‑outs are structured and taxed to retain more after closing.

Step 6: Sales of Services or Consulting Agreements

Post‑sale consulting or employment payments are typically taxed as ordinary income and subject to payroll or self‑employment taxes.
This is separate from your capital gains. Structure accordingly to optimize your tax position.

Step 7: State & Local Tax Planning

State taxes can drastically change your net proceeds:

  • Some states (e.g., FL, TX) have no state capital gains taxes

  • Others (e.g., CA, NY) tax capital gains at up to 13%

  • Residency, business location, and where revenue is generated are all relevant

✅ Pro tip: Consider residence strategies ahead of closing to reduce your state tax rate.

Step 8: Smart Pre‑Sale Tax Planning

These advanced approaches may lower your tax bill:

  • Installment sale election: Spread gain recognition over time

  • Charitable giving (donor‑advised funds): Donate equity to reduce taxable gains

  • Family trusts or gifting: Shift tax burden to lower‑cost family members

  • Rollover equity in a newco or SPV: Defer gains while retaining upside

These moves need to be set in motion months in advance.

Step 9: Assemble Your Exit Team

To navigate taxes on selling a PR agency well, you’ll need:

  1. An M&A advisor to optimize deal structure

  2. A CPA experienced in agency or M&A tax

  3. A deal attorney to draft favorable agreements

  4. A wealth advisor for post‑sale planning

Together they help you keep more money and avoid pitfalls across the deal lifecycle.

Final Thoughts

Taxes on selling a PR agency matter more than you may think. Your ultimate payout depends not just on sale price—but on entity type, deal structure, allocation, residency, and earn‑out design.

At Merge, we guide founders through every step—ensuring your deal is structured for tax efficiency, signed when you’re ready, and optimized for what you take home.

If you’re planning an exit and want to understand how taxes on selling a PR agency will impact you, let’s start the conversation. We’re here to help!