Every small business owner has an opinion about whether to remain a sole proprietor or to incorporate, but here’s a situation in which you might want to do the latter: You’re selling your company. Why does it matter? Because someone selling an incorporated business can keep $813,000 of the sale proceeds under the lifetime capital gains exemption. Anything above that amount is subject to capital gains tax, but anything below that is yours, says Dorothy Keating, a St. John’s–based accountant with Noseworthy Chapman. Otherwise, a sole proprietor selling assets, such as client lists, will have the entire proceeds taxed.
The bottom line: Making use of the lifetime capital gains exemption can save you hundreds of thousands of dollars.