Selling your web development agency can be one of your most exciting achievements. Alongside that excitement, it’s essential to understand how taxes affect your sale so you can maximize your outcome and avoid surprises.

When you understand taxes on selling a web development agency early, you can make smart decisions and feel prepared. At Merge, we guide founders through this process so they can exit confidently and keep more of what they’ve earned.

Here’s what every founder should know.

Why taxes matter in your sale

Taxes can significantly affect what you take home after closing. Many founders focus on securing a high sale price, but your net proceeds matter most.

The great news is that careful planning can reduce your tax burden and help you feel in control.

Asset sale or stock sale?

The way your deal is structured impacts your tax outcome. Most deals are either asset sales or stock sales.

  • Asset sale: You sell specific assets like contracts, goodwill, or equipment. Buyers often prefer this structure because they can choose exactly what they want. For sellers, different asset types receive different tax treatment. Some income may be taxed at higher ordinary income rates, while other parts qualify for lower capital gains rates.

  • Stock sale: You sell your ownership shares. This is often simpler and usually allows all proceeds to qualify for favorable long-term capital gains tax rates.

Understanding this distinction helps you negotiate terms that match your financial goals.

Short-term vs long-term capital gains

How long you have owned your agency matters too. Most founders have owned their business for more than a year. That means sale proceeds usually qualify for lower long-term capital gains rates, which is a positive outcome.

If you’ve owned the business less than a year, gains may be taxed as ordinary income. Knowing this distinction helps you estimate your taxes in advance.

Purchase price allocation

In an asset sale, you and your buyer must agree on how to allocate the purchase price among different asset types. This is important because each asset type is taxed differently.

Goodwill often makes up the largest share of a web development agency’s value. Goodwill usually qualifies for capital gains tax treatment, which helps reduce your tax bill. Other assets, like equipment, may trigger higher taxes.

Discuss allocation early with your advisor to protect your financial interests.

State and local tax considerations

Your location also affects your tax outcome. Some states, like Texas or Florida, have no state income tax. Other states, like New York and California, apply higher state tax rates to capital gains.

Understanding your state’s tax rules ensures you can calculate your net proceeds accurately. Your tax advisor can help you plan for this early.

Installment payments and tax timing

If your deal includes deferred payments or an earn-out, taxes are typically due when payments are received, not all at once. This can help spread your tax liability over several years and improve your cash flow.

It’s smart to explore this option early in negotiations. A well-structured payment plan may help you keep more of what you earn from the sale.

C corporation considerations

If your agency is a C corporation, taxes can be more complex. In an asset sale, your corporation pays taxes when assets are sold. Then you pay personal income tax when proceeds are distributed. This results in double taxation.

In a stock sale, only personal taxes apply, which makes this structure more appealing for many C corporation owners. Buyers may still prefer asset sales, so planning ahead helps you balance these preferences.

Qualified Small Business Stock (QSBS) exclusion

Some C corporation owners may qualify for the Qualified Small Business Stock (QSBS) exclusion. This allows up to 100% of gains from the sale of qualified stock to avoid federal capital gains taxes.

To qualify, you must have held the stock for at least five years and meet other requirements. If you think you might qualify, speak with your tax advisor. The potential savings can be significant.

Early planning brings better outcomes

When it comes to taxes on selling a web development agency, early planning is key. With expert guidance, you can understand what taxes apply, estimate your net proceeds, and negotiate terms that support your goals.

Being prepared helps reduce stress, build buyer confidence, and keep the process moving smoothly.

Final thoughts

Selling your web development agency is a proud moment. Knowing how taxes will affect your sale allows you to keep more of what you’ve built and feel confident about your next chapter.

At Merge, we help founders plan their exit so they’re ready for every detail. If you are starting to think about selling your agency, we’re happy to be a resource and guide you through every step.