Selling your video production company is a major achievement, but the sale price is only part of the equation — what truly matters is how much you keep after taxes. Understanding taxes on selling a video production company is essential to ensure you minimize your tax burden and walk away with the best possible net proceeds.

This guide breaks down the most important tax issues and what you can do to prepare effectively.

Why Tax Planning Matters

Many founders focus on getting the highest purchase price, but taxes can significantly reduce the proceeds you keep. Without proper planning, you could lose 30% to 50% of your sale price to taxes.

The good news is that early, thoughtful planning can help minimize taxes and avoid unpleasant surprises at closing.

How Deal Structure Affects Taxation

The way your sale is structured determines how the IRS (and your state) will treat the proceeds. The two most common structures are:

Asset Sale

In an asset sale, the buyer acquires the assets of your company — equipment, intellectual property, client contracts, goodwill — rather than the entity itself.

  • Advantages for buyers: They get to depreciate assets and avoid many legacy liabilities.

  • Disadvantages for sellers: The tax impact is often more complex, with parts of the proceeds taxed at different rates.

Some assets may qualify for lower capital gains tax rates, while others — such as equipment or non-compete agreements — may be taxed as ordinary income at higher rates.

Stock Sale

In a stock sale, the buyer acquires your ownership stake in the business entity. Sellers generally prefer stock sales because most or all of the proceeds may qualify for long-term capital gains tax treatment, resulting in a lower tax rate.

Understanding these differences is crucial to negotiating the deal structure that’s right for you.

Capital Gains vs. Ordinary Income

A key goal of tax planning is ensuring as much of the sale proceeds as possible qualify for favorable capital gains treatment.

  • Long-term capital gains: Typically taxed at 15% or 20%, depending on your income level, plus an additional 3.8% net investment income tax for some high earners.

  • Ordinary income: Taxed at rates up to 37% federally, plus applicable state taxes.

Payments related to services you provide after closing (such as consulting agreements or compensation during an earn-out period) are generally taxed as ordinary income.

Careful deal structuring reduces this exposure and maximizes after-tax proceeds.

Purchase Price Allocation in Asset Sales

In an asset sale, the buyer and seller must agree on how the total purchase price is allocated among different asset classes. This allocation significantly affects how your proceeds are taxed.

For example:

  • Goodwill and intangible assets usually qualify for capital gains treatment.

  • Equipment and inventory may result in ordinary income treatment due to depreciation recapture.

  • Payments allocated to non-compete agreements are taxed as ordinary income.

Negotiating purchase price allocation thoughtfully can have a meaningful impact on your net outcome.

State Taxes and Residency

Where you live when the sale closes affects your tax bill. State income tax rates vary significantly:

  • California and New York impose high state taxes.

  • Florida and Texas have no state income tax.

If you are planning to relocate before selling your company, timing and proper documentation are critical to establishing residency in a new, lower-tax state.

Qualified Small Business Stock (QSBS) Exclusion

Some founders may qualify for a powerful tax benefit known as the Qualified Small Business Stock (QSBS) exclusion.

If your company is a C-corporation and meets certain conditions (including a minimum five-year holding period), you may be able to exclude up to $10 million or 10 times your basis in stock from federal capital gains taxes.

QSBS requires early planning to meet eligibility requirements, so discuss this option with a tax advisor well before going to market.

Installment Sales and Earn-Outs

Many video production company sales involve deferred payments, either through installment sales or earn-outs tied to future performance.

  • Installment sales: Allow you to spread tax liability over multiple years as payments are received.

  • Earn-outs: Payments tied to post-sale results can be treated differently depending on how they are structured.

The timing and structure of these payments affect when and how taxes apply, so planning with a tax professional is essential.

Clean Financial Documentation Reduces Surprises

Organized, transparent financial records help reduce tax surprises and support favorable treatment.

Before listing your company:

  • Ensure financial records align with tax filings

  • Provide clear breakdowns of revenue, costs, and margins

  • Document any adjustments that reflect normalized earnings

Good records build buyer confidence and support smooth negotiations.

How to Prepare for Tax Efficiency

Even if you are not ready to sell immediately, proactive planning creates opportunities to reduce your tax burden later.

Key steps include:

  • Consulting an experienced tax advisor early in the process

  • Reviewing your entity structure and how it impacts taxation

  • Understanding how deal structure and purchase price allocation will affect your tax liability

  • Planning residency status carefully if you’re relocating before the sale

  • Exploring QSBS eligibility if you operate as a C-corporation

Merge Helps Founders Navigate Tax Issues

At Merge, we guide video production company founders through every step of preparing for sale, including tax considerations. We work closely with founders and their advisors to ensure they understand tax impacts, negotiate favorable structures, and exit successfully.

Even if you are planning years ahead, we can help you prepare today so you’re ready when the right time comes.

Final Thoughts

Understanding taxes on selling a video production company ensures you keep more of the value you’ve worked so hard to build.

By preparing early, consulting with tax professionals, maintaining clean records, and negotiating the right deal structure, you can minimize your tax burden and exit confidently.

At Merge, we’re here to help you navigate every step of this journey, so you can achieve your goals and keep more of what you have built.