Selling Your Business in Tennessee: A Tax Planning Guide for Owners
For most business owners, the sale of their company is the single largest financial event of their lifetime. It can generate more wealth in a single transaction than two or three decades of savings. It can also generate one of the largest tax bills of their lifetime — unless the planning that goes into the sale is as carefully considered as the sale itself.
Tennessee business owners have structural advantages going into a sale: no state income tax on capital gains means the entire tax burden is federal. But federal capital gains taxes on a business sale can be substantial, and without a coordinated strategy that begins well before the transaction closes,
aragon Private Wealth Management is a financial services group offering investment advisory services through Savvy Advisors, Inc. (“Savvy”). Savvy is an investment advisor registered with the Securities and Exchange Commission (“SEC”). Paragon Private Wealth Management is not a separately registered investment advisor.
Tax services are provided through Paragon Tax, a separate and distinct entity from Paragon Private Wealth Management and Savvy Advisors, Inc.significant value can be lost unnecessarily.
This guide covers the three phases of a business sale from a tax and wealth management perspective: before, during, and after.
Phase 1: Before the Sale — The Planning Window That Matters Most
The period before a sale is where the most meaningful tax planning takes place — and where the most value is typically left on the table when owners don't have an advisor involved early enough.
Business Structure and Sale Structure
How your business is structured (C-corp, S-corp, LLC) and how the deal is structured (asset sale vs. stock sale) have significant tax consequences that are largely determined before a letter of intent is signed. Asset sales typically result in ordinary income tax on some components and capital gains on others. Stock sales are generally more favorable from a tax perspective but may be preferred differently by buyers. Understanding these trade-offs early in the process is essential.
Timing and Income Smoothing
If you have flexibility on when the sale closes, timing matters. A sale that closes in a year when your personal income is already elevated creates a more compressed tax picture than one timed to a lower-income year. This is a conversation that requires your wealth advisor and tax advisor to be working together before the process begins.
Pre-Sale Gifting Strategies
Transferring a portion of business equity to family members or to a donor-advised fund before a sale — before the value is fully established through a signed purchase agreement — can remove that equity from your taxable estate and, in the case of a donor-advised fund, eliminate capital gains tax on the donated portion entirely. This strategy requires advance planning and proper valuation documentation, but for business owners with charitable intent, it can be one of the most efficient moves available.
Phase 2: During the Sale — Structure, Escrow, and Installment Considerations
Once a deal is in process, there are still planning decisions that affect the tax outcome.
Installment Sales
In some transactions, sellers can negotiate to receive proceeds over multiple years rather than in a single lump sum. An installment sale spreads the gain recognition over time, which can keep the seller in a lower capital gains bracket in any single year and defer a portion of the tax liability. This structure works best when the seller has confidence in the buyer's ability to pay over time and is willing to accept deal terms that reflect the arrangement.
Earnouts and Contingent Payments
Earnouts — payments contingent on the business hitting post-sale performance milestones — have distinct tax treatment that depends on how they are structured. They can be treated as capital gains or as ordinary income depending on the deal structure. Understanding this distinction before agreeing to earnout terms is important and often overlooked.
Phase 3: After the Sale — Managing Sudden Wealth Intelligently
When a business sale closes, the owner often transitions from a world where their wealth was tied up in an illiquid private company to a world where they suddenly have a large, liquid portfolio. This transition is significant and requires a different kind of management.
Building a Tax-Efficient Investment Portfolio
A large, newly liquid portfolio needs to be invested thoughtfully and tax-efficiently from the start. At Paragon, we build portfolios using individual stocks and bonds rather than mutual funds or ETFs. This gives us full control over when gains are realized and the ability to harvest losses actively throughout the year — a critical feature when managing a new portfolio of meaningful size.
Our investment approach maintains a bias toward U.S. blue-chip equities: large, established companies with strong fundamentals, consistent dividends, and deep liquidity. For recently exited business owners, stability and predictability in the portfolio are often as important as growth. International exposure is added selectively where it adds genuine value, not as a default allocation.
Concentrated Position Considerations Post-Sale
In some transactions, sellers receive a portion of their proceeds in the form of stock in the acquiring company rather than cash. This creates a new concentrated position — often with restrictions on when it can be sold. Paragon has experience managing these situations: building a plan to work the position down over time in a structured, tax-aware way that avoids unnecessary gain recognition in any single year.
Coordinated Tax Planning in Year One and Beyond
The year a business sale closes is often the most complex tax year of an owner's life. Significant capital gains, ordinary income, potential AMT exposure, and decisions about charitable giving and Roth conversions all intersect at once. Having a wealth advisor and a tax advisor who are working from the same information — rather than two separate teams who meet once a year — is the difference between reactive filing and proactive planning.
This integration is Paragon's core model. Investment management and tax preparation and planning are delivered as one coordinated service, with your advisor and tax team in continuous communication throughout the year. For business owners navigating a sale and its aftermath, that coordination is not a nice-to-have — it is the strategy.
About Paragon Private Wealth Management
Paragon Private Wealth Management is an independent, fee-based fiduciary wealth advisory firm headquartered at 324 Main Street, Suite 200, Franklin, TN 37064. We serve business owners and high-net-worth families with $2 million to $20 million in investable assets across Middle Tennessee and nationally.
Our integrated approach combines investment management built with individual stocks and bonds, comprehensive financial planning, and tax preparation and planning through Paragon Tax. We have no commissions and no conflicts of interest.
To schedule a complimentary 30-minute introductory call with Allen Buckley, CFP® (CERTIFIED FINANCIAL PLANNER™), contact us at (615) 249-4091 or visit paragonpwm.com.
Strong. Steady. Strategic.
Paragon Private Wealth Management is a financial services group offering investment advisory services through Savvy Advisors, Inc. (“Savvy”). Savvy is an investment advisor registered with the Securities and Exchange Commission (“SEC”). Paragon Private Wealth Management is not a separately registered investment advisor.
Tax services are provided through Paragon Tax, a separate and distinct entity from Paragon Private Wealth Management and Savvy Advisors, Inc.