When you’re selling an online business, it’s easy to focus on the headline number. But what really matters is what you take home after taxes.

Taxes can significantly impact your final payout, especially if they catch you off guard. That’s why the most successful exits always include thoughtful tax planning long before the deal closes.

In this guide, we’ll break down the biggest tax considerations when selling an online business—and how to navigate them with clarity and confidence.

Why Tax Planning Matters

Let’s be honest—no one wants to spend hours thinking about tax codes. But ignoring this piece of the puzzle could mean losing out on a big portion of your hard-earned gains.

Getting ahead of the tax piece allows you to:

  • Structure the deal in a way that favors your bottom line

  • Avoid last-minute surprises

  • Time payments more effectively

  • Keep more of what you’ve built

At Merge, we always recommend looping in a tax advisor early in the process to plan proactively.

Capital Gains vs. Ordinary Income

One of the most important distinctions is how your sale proceeds will be taxed—either as capital gains or ordinary income.

  • Long-term capital gains (usually 0%, 15%, or 20%) typically apply when you’ve held the business for more than a year and are selling ownership.

  • Ordinary income (based on your income bracket) can apply to assets like recaptured depreciation, non-compete payments, or consulting fees.

Why it matters:
Maximizing the capital gains portion of your deal (versus income) can save you a significant amount in taxes. How the deal is structured has a huge impact here.

Stock Sale vs. Asset Sale

In most small business sales—including online businesses—buyers prefer asset sales because they get to “step up” the assets and reduce their own tax liability.

But sellers typically prefer stock sales (if the business is incorporated) because they’re often simpler and taxed more favorably.

Asset Sale

  • You sell individual assets (IP, customer lists, equipment, etc.)

  • Tax is split between capital gains and ordinary income

  • More complex allocation and negotiation

Stock Sale

  • You sell ownership in the business entity

  • Usually taxed fully as capital gains

  • Less itemization required

Tip: You’ll often need to negotiate which route to take. A skilled advisor can help structure the deal in a way that works for both sides.

Installment Sales and Payment Timing

Not every deal is paid 100% upfront. If part of your payment is deferred (e.g. over a year or tied to performance), it’s important to know how that impacts your tax bill.

Installment sales allow you to spread tax payments over time, aligning with when you actually receive the money.

Why it matters:

  • Reduces upfront tax liability

  • Helps with cash flow post-close

  • Must be structured carefully to meet IRS guidelines

State and Local Taxes

Your tax bill isn’t just federal—state taxes can vary dramatically based on where you live or where your business is incorporated.

  • Some states have no income tax (like Florida or Texas)

  • Others (like California or New York) may take a bigger bite

Tip: Talk to a tax advisor who understands multi-state tax rules, especially if you’ve operated in multiple regions or your buyer is in a different state.

Qualified Small Business Stock (QSBS)

If you structured your business as a C-Corp and meet certain requirements, you might be eligible for QSBS exemption—which can eliminate federal taxes on up to $10 million in gains.

It’s a powerful tool—but comes with specific conditions:

  • 5-year holding period

  • C-Corp status

  • Active business requirements

  • Original stock issuance

Not every online business qualifies, but if yours does, the tax savings can be huge.

Deductions and Deal Costs

You may be able to deduct some deal-related expenses—like legal fees, broker commissions, and consulting support—when calculating your net gain.

Just be sure to keep thorough records and work with your CPA to determine what qualifies.

Timing Can Impact Taxes

Selling at the end of a high-income year? Your capital gains may push you into a higher tax bracket.

Selling in a year when your income is lower? You might pay a lower rate on those same gains.

Planning tip:
If you have flexibility in timing your deal, coordinate with your tax team to land in the most favorable tax year.

Work with the Right Team

There’s no one-size-fits-all answer to taxes on selling an online business. Every founder’s situation is different—and that’s why it’s so important to have expert support.

At Merge, we partner closely with your tax advisors to ensure your deal is structured in a way that aligns with your goals, minimizes surprises, and maximizes your net proceeds.

Final Thoughts

Selling an online business is a big financial moment. Don’t let taxes catch you off guard.

With a little planning—and the right people in your corner—you can make sure more of that final sale price ends up in your pocket.

If you’re even thinking about selling in the next year, now is the time to start planning. Let’s make it a smart, strategic, and rewarding exit.