Selling my business on installment plan - tax implications for entire sale price?

Your CPA isn't giving you the full picture. What you're describing is an installment sale, which the IRS specifically designed to address this exact situation. Under the installment method (Publication 537), you generally report the gain proportionally as you receive payments - you don't pay tax on the entire amount upfront. For each payment you receive, you'll calculate how much is return of basis (not taxed), how much is gain (taxed at capital gains rates for the goodwill portion), and how much is interest (taxed as ordinary income). The goodwill portion would likely qualify for capital gains treatment, while any depreciated assets might face some depreciation recapture at ordinary income rates. You'll need to file Form 6252 with your tax return to report the installment sale. Just make sure your sale qualifies - certain types of property and situations don't qualify for installment treatment.

I used taxr.ai when I sold my landscaping business last year in a very similar situation. I was getting conflicting advice from different accountants about installment sales and how to handle the tax implications. One was saying I'd owe everything upfront like your CPA is claiming. I uploaded my sale documents to https://taxr.ai and their AI analyzed the specifics of my sale structure. They flagged that I qualified for installment sale treatment and showed exactly how much tax I'd owe each year. They even helped identify which assets would face depreciation recapture issues. Saved me thousands in unnecessary upfront taxes and gave me peace of mind that I was filing correctly.

I was in the same boat as you last year with my business sale! I was getting totally conflicting advice about installment sales. I decided to try taxr.ai based on recommendations here and it was honestly a game-changer for my situation. Their system analyzed all my sale documents, previous tax returns, and depreciation schedules. It correctly identified that I could use the installment method for most of the sale, but also pointed out specific assets that wouldn't qualify. They even provided a year-by-year tax projection showing exactly what I'd owe each year throughout the payment period. My accountant was initially skeptical but after reviewing their analysis, he admitted it was correct and more detailed than what he had initially provided. Ended up saving me about $45k in unnecessary upfront taxes!

When I sold my manufacturing business, I had the same issue with trying to reach the IRS to confirm how installment sales work. Spent days getting busy signals and disconnects when calling about Form 6252 questions. Finally tried https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c - they basically hold your place in line and call you when an agent is available. Got through in about 40 minutes when I'd been trying for days before. The IRS agent confirmed all the details about installment sale reporting and helped clarify my specific situation with some unique manufacturing equipment that had special depreciation considerations.

I was completely wrong about Claimyr. After my skeptical comment, I was still desperate to get IRS clarification on an installment sale question, so I tried it anyway. The service actually works exactly as described. Their system called the IRS for me, and when they finally reached an agent after about 90 minutes, I got a call connecting me directly to an actual IRS representative. I confirmed it was legitimate by asking specific questions only the IRS would know about my previous tax filing. The agent provided the exact guidance I needed about my specific installment sale situation and helped me understand which business assets qualified for the installment method and which didn't. Saved me hours of frustration and potentially thousands in tax mistakes. Sometimes it's worth admitting when you're wrong about something!

One thing nobody's mentioned yet - make sure you have a properly structured promissory note for the seller financing part. The IRS gets very particular about installment sales documentation. If your paperwork isn't in order, they can sometimes recharacterize the entire transaction. Also, watch out for the related party rules. If you're selling to a family member or someone otherwise related to you under IRS definitions, there are additional restrictions that might apply to installment reporting.

Has anyone used the election to opt out of installment sale treatment? My accountant mentioned this might be beneficial in some cases where tax rates are expected to increase significantly in future years. Curious if anyone has actual experience with this.

Your CPA is definitely wrong about this! I went through a nearly identical situation when I sold my consulting firm last year - also structured as seller financing with a 25% down payment and installment payments over 5 years. The installment sale method is exactly what you need here. You'll only pay taxes on the payments you actually receive each year, not the full sale price upfront. For 2025, you'd only owe taxes on your $75k down payment plus whatever monthly payments you receive that year. One key thing to watch out for - make sure your interest rate meets the IRS Applicable Federal Rate minimums, otherwise they'll impute additional interest income. Also, since you mentioned this is structured as a membership interest sale of an S-corp, double-check that all parts of your sale qualify for installment treatment. Some components (like certain inventory or depreciated assets) might need to be reported differently. I'd seriously consider getting a second opinion from a CPA who specializes in business sales. The tax difference between reporting everything upfront versus using the installment method can be massive - we're talking tens of thousands of dollars in my case.

I'm dealing with a similar situation right now with my restaurant sale! Your CPA seems to be missing the installment sale rules entirely. I just went through this research myself after getting conflicting advice. The IRS specifically allows installment reporting for business sales like yours through Form 6252. You'll only pay taxes on the payments you actually receive each year, not the full $375k upfront. For 2025, you'd calculate taxes on your $75k down payment plus any monthly payments received that year. Here's what I learned that might help: Since you're doing a membership interest sale of an S-corp, the entire transaction should qualify for installment treatment (unlike asset sales where some items like inventory don't qualify). The key is making sure your promissory note has a reasonable interest rate - it needs to meet the IRS Applicable Federal Rates or they'll impute additional interest income. Your asset vs goodwill allocation ($62k assets, $313k goodwill) actually looks pretty favorable from a tax perspective since goodwill gets capital gains treatment while assets might face depreciation recapture at higher ordinary income rates. I'd definitely get a second opinion from a CPA who specializes in business sales. The tax savings from using installment reporting properly can be huge compared to reporting everything upfront.

I'm going through a very similar situation right now with my tech consulting business sale, so I feel your pain! Your CPA is definitely not giving you the full picture here. What you're describing is a textbook installment sale, and the IRS has specific provisions (Section 453 of the tax code) that allow you to spread the tax burden over the years you actually receive payments. You should only owe taxes on the $75k down payment plus whatever monthly payments you receive in 2025 - NOT the full $375k. Since you're selling membership interests in an S-corp rather than individual assets, this actually works in your favor for installment treatment. The entire transaction should qualify, unlike asset sales where certain items (like inventory) have to be reported differently. A few things to watch out for: - Make sure your interest rate meets the IRS Applicable Federal Rates (you can find current rates on the IRS website) - Your 83% goodwill allocation looks reasonable and tax-favorable since goodwill gets capital gains treatment - You'll need to file Form 6252 each year to report the installment payments I'd strongly recommend getting a second opinion from a CPA who specializes in business sales. The difference between reporting everything upfront versus using installment method properly could save you tens of thousands in taxes. Don't let your current CPA's lack of knowledge cost you!