Selling a Business in Utah: What to Do Two or Three Years Before the Sale

Most owners start thinking about selling a business in Utah when a buyer calls. By then, several decisions that shape what they keep are hard to change. The two or three years before a sale are when value can still be built, the deal can still be shaped around taxes, and gifts to family or charity can still happen at lower values. A sale plan does not cover an unexpected death before closing, which our article on an owner dying without a succession plan addresses.

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Know your number before you talk to buyers

Your number is what the sale has to net, after taxes, debt payoff and fees, to fund the rest of your life. It comes from your spending, other savings, Social Security and how long the money must last. A broker’s estimate tells you what the market might pay. It does not tell you what you need.

Without a number, owners tend to hold out for a price they do not need, or accept one that leaves too little cash at closing because much of it is deferred or contingent. With one, each offer can be judged by what it puts in your pocket and when. We start this in the first step of our process, Define Your Why. The last years before a sale are often an owner’s highest-income years, and a cash balance plan can move part of that income into tax-deferred savings.

Who might buy your company

• Strategic buyers in your industry may pay more because they can cut overlapping costs or sell to your customers.
• Private equity firms want steady earnings and a management team that stays. They often ask the owner to keep a minority stake.
• Employees can buy through a management buyout or an employee stock ownership plan (ESOP). A C corporation owner who sells to an ESOP that ends up owning at least 30 percent may be able to defer gain under section 1042 if other conditions are met.
• Family members rarely pay full value in cash, so family transfers usually combine gifts, a seller note and the estate plan.
• A partner may already hold a right to buy you out. The price formula or right of first refusal in your buy-sell agreement can shape or block a sale to anyone else.

What raises value in the years before a sale

Buyers price a company on the earnings they expect to continue after you leave, and on how much they trust those earnings.

• Clean financial statements, reviewed or audited and prepared consistently for at least three years, with personal expenses removed or documented.
• A quality of earnings review done before going to market, so problems surface in time to fix them.
• Recurring revenue from service contracts and multi-year agreements, which usually earns a higher multiple than one-time project work.
• Less dependence on you. If customers, lenders and key staff deal mainly with the owner, a buyer is purchasing a risk.
• A management team with retention incentives tied to a sale.
• Lower customer concentration. When one customer is a large share of revenue, buyers tend to cut the price or push more of it into an earnout.
• Documented processes for operations, pricing, safety and hiring.

How deal structure changes what you keep

Two offers with the same headline price can produce very different after-tax results.

Asset sale or stock sale. Buyers usually prefer assets, which give them a fresh tax basis and leave old liabilities behind. Sellers usually prefer to sell stock, because gain on shares held more than a year is generally long-term capital gain. In an asset sale the price is allocated among asset classes, and inventory produces ordinary income while goodwill generally produces capital gain.

Depreciation recapture. Gain on equipment, up to the depreciation already taken, is ordinary income. Gain tied to depreciation on buildings can be taxed at up to 25 percent federally.

Installment sales and seller notes. When part of the price arrives over time, gain is generally reported as payments come in, except recapture, which is reported in the year of sale even if no cash has arrived. A seller note also makes you a lender to the new owner.

Earnouts. These pay part of the price only if the company hits targets after closing, which depends on results you no longer control.

Rollover equity. Private equity buyers often ask the seller to reinvest part of the proceeds. The rolled portion can be tax-deferred if structured properly, but it keeps wealth in one illiquid company, much like concentrated stock after an acquisition.

Non-compete and consulting payments. These are generally ordinary income to the seller, and consulting pay can carry payroll or self-employment tax.

Taxes on selling a business in Utah

Utah taxes nearly all income at one flat rate, 4.45 percent for 2026, with no separate capital gains rate. On an $8 million gain, the Utah tax is roughly $356,000. Federally, long-term capital gain is taxed at up to 20 percent, and the 3.8 percent net investment income tax can apply depending on your role in the business.

The federal deduction for state and local taxes is capped at $40,400 for 2026 and phases down toward $10,000 once modified adjusted gross income passes $505,000. Most sellers pass that range in a sale year, leaving the Utah tax on the gain largely nondeductible.

Utah’s elective pass-through entity tax. Since 2022, a partnership, an LLC taxed as a partnership or an S corporation can elect to pay Utah income tax at the entity level, at the individual rate, for all its individual owners. Federal guidance lets the entity deduct that tax, and the owners claim a nonrefundable Utah credit for it. The election is made each year on Form TC-75 with payment by the last day of the entity’s tax year, and it cannot be revoked once paid. It matters most when the entity itself recognizes the gain, as in an asset sale.

Qualified small business stock for C corporations

Section 1202 can exclude a large share of the federal gain on qualified small business stock (QSBS): C corporation stock acquired at original issuance, held long enough, in a company that meets the business and size tests. S corporation shares and LLC interests taxed as a partnership do not qualify, and many service fields, such as health, law, accounting and consulting, are excluded.

The One Big Beautiful Bill Act, signed July 4, 2025, changed the rules for stock acquired after that date:

• The exclusion is 50 percent of the gain after three years, 75 percent after four and 100 percent after five.
• The per-company cap rose from $10 million to $15 million per taxpayer, indexed for inflation after 2026, or ten times your basis if higher.
• The ceiling on the company’s gross assets rose from $50 million to $75 million.

Stock acquired on or before July 4, 2025 keeps the earlier rules: generally more than five years of holding and, for stock acquired after September 27, 2010, a 100 percent exclusion up to $10 million or ten times basis. New-rule stock cannot reach three years until July 2028, so most owners selling soon fall under the older rules. Utah starts from federal adjusted gross income, so gain excluded federally generally stays off the Utah return as well. Qualification is technical and worth confirming early.

Moves that must come before a letter of intent

Once a letter of intent sets the price and main terms, the window for some planning narrows or closes.

Gifts to family or trusts. Shares given before a deal is in sight are valued at today’s price, sometimes with discounts for a minority interest, and later growth happens outside your estate. For 2026 the federal estate and gift tax exemption is $15 million per person and the annual gift exclusion is $19,000 per recipient. Utah has no estate or inheritance tax. Gifted shares keep your original basis.

Charitable planning. Giving appreciated shares to a donor-advised fund or a charitable remainder trust before a sale can keep the gain on those shares off your return, and a charitable remainder trust can also pay you an income stream. S corporation shares raise extra issues for both, and from 2026 itemized charitable deductions count only above 0.5 percent of adjusted gross income.

The assignment-of-income doctrine. If shares are given away after a sale is practically certain, the IRS and the courts can treat the gain as the donor’s anyway. Courts look at all the facts, not only the date of a letter of intent, and the later the gift, the greater the risk. This planning belongs with your CPA and attorney well before negotiations turn serious.

After the sale: cash, taxes and what comes next

A cash plan. Before closing, decide where the proceeds will land, how much stays in cash or short-term Treasuries for the next year or two, and when escrows or holdbacks should pay out.

Taxes set aside. Moving the expected federal and Utah tax to a separate account at closing keeps it from being spent or invested by accident.

No rushed investment decisions. Holding proceeds short term while a plan is built costs little.

Replacing what the business gave you. The company supplied a schedule, a title, friendships and a sense of usefulness along with income, and replacing those takes more thought than the money does.

Where we fit

We help owners set their number, test offers against it and coordinate the tax, estate and investment work with their CPA, attorney and broker or banker. Our business planning page describes how that work runs before and after a sale.

Frequently asked questions

Written by Trevor Hanson, Founder | President | Author | Wealth Advisor, RJFS. Last reviewed: October 28, 2026.