How to Make $10 Million Profit on a Business Sale Tax-Free

Want to sell a business and keep up to ten million dollars in profit—tax-free?

Hi, I’m Dave Horwedel, CEO of Torchlight Tax. You can sell your company and keep up to $10 million in profit tax-free, or even more! This is made possible by Section 1202 of the Internal Revenue Code, known as the Qualified Small Business Stock (QSBS) exclusion. It allows you to exclude the GREATER of $10 million or 10 times your original investment from federal capital gains tax. The most important part of this strategy is to create a business that is worth millions of dollars. This requires entrepreneurial skill, bright ideas, correct programming and execution. This is the hardest part of this strategy for most. This is also a good time to make sure you have a proper asset protection structure to protect your assets in case something goes awry or a legal attack occurs. You are on the path to generating millions of dollars in wealth. The best time to protect this future wealth is at the start. If you plan on making these millions tax-free, you must set the structure up properly at the beginning for this favorable tax treatment. Step 1: You Must form a C Corporation QSBS treatment only applies to stock issued by C Corporations. If you’re an LLC or S Corporation, partnership, or sole proprietorship, you must convert to a C Corporation and issue stock. Converting incorrectly or at the wrong time can create tax and legal complications. We recommend you contact Torchlight Tax or other qualified tax/legal professionals before doing this step. Contact Torchlight Tax for a free consultation at 877-758-7797 or email info@torchlighttax.com. Step 2: You Must Issue Stock and Hold It for Five Years or More The five-year holding period starts when the stock is issued. The stock MUST be held for five years. Selling even one day too early disqualifies you from QSBS treatment. You must own original issued stock directly from the company—not stock bought secondhand. Step 3: Gross Assets Must Be Under $50 Million To qualify for the Section 1202 exclusion as a C corporation, the aggregate gross assets of the corporation must not have exceeded $50 million at any time before or immediately after the issuance of the stock. That $50 million cap includes all assets—cash, property, equipment, and intellectual property. Exceeding it, even briefly, disqualifies you. Step 4: You Must Run a Qualified Trade or Business Not all industries are eligible. QSBS does not apply to businesses in law, accounting, healthcare, financial services, or hospitality. But most product companies, tech startups, and traditional small businesses do qualify. Step 5: You Must Plan Ahead You can’t restructure or issue stock right before a sale. The IRS requires that all criteria be met at the time stock is issued—and that they remain valid through the entire five-year holding period. If a buyer is already lined up, it’s probably too late. What to do next You are about to embark on a wealth creation journey. The first step is deciding to do it. I have worked with many individuals who have done the journey to create wealth. This tax-free sales strategy is one option. You may decide at the end to keep the company and live off the profits. Whatever strategy you employ, creating the wealth is one step. This is your main task. Protecting your wealth from taxes or lawsuits or other pitfalls is another task. We are here to help you with that. Contact Torchlight Tax for a free consultation at 877-758-7797 or info@torchlighttax.com.