How to prepare a business for sale comes down to four decisions over three years, and Apollon Wealth Management puts them in deadline order: clean statements, owner pay, retirement deposits, entity questions. Medicare looks back two years when it sets premiums. Under the 2026 schedule, a single person whose income topped $500,000 pays $689.90 a month for Part B instead of $202.90, about $5,844 more for the year, and that bill lands two years after the sale year. Owners tend to raise this in the fall, when the year-end numbers arrive and they wonder what a buyer will make of them. It comes from what Apollon Wealth Management hears in first meetings, and this article follows one hypothetical owner through each stage.
By Marcus Thompson, CFA — Wealth Manager | Reviewed by Hiroshi Tanaka, CFPMarcus builds diversified portfolios for high-net-worth clients, with deep expertise in asset allocation and risk management.
A deposit that saves 30 percent today and comes out at 30 percent in three years hasn't saved anything. It has only moved the tax.
CPA and Tax Director, Apollon Wealth Management
Ask for the fixed-asset schedule three years out. A shop that expensed every machine can face ordinary income on the full depreciation in an asset sale.
Senior Financial Planner, Apollon Wealth Management
Pick the closing month with the Medicare tiers in hand. Income two years before sets the premium, and one December or January choice can change it.
CFP® and Lead Advisor, Apollon Wealth Management
Three years out, at 68: the books, the pay and the entity
Merle (hypothetical) is 68, widowed, and owns the $2.5 million machine shop his father started. He wants to close a sale at 71. Two adult daughters are in the picture, and one works in the shop.
First, he asks the CPA for reviewed statements for this year and each of the two years before closing; compiled statements carry less weight. Buyers, and the lenders behind an employee group, usually want three years. Next he sets his own W-2 pay. The entity question comes last.
Owner pay should sit near what a hired shop manager would cost, so a buyer's adjusted earnings match the books. On the tax side, an S corporation owner paying himself very little invites reasonable-compensation questions from the IRS. And anyone whose prior-year FICA wages exceeded $150,000 must make 401(k) catch-up contributions as Roth.
If the shop is still a C corporation, an S election now won't clear the five-year built-in gains period before a sale at 71. An asset sale would still carry corporate-level tax on that gain. Ask the CPA and the attorney to say in writing whether a stock sale is the likelier structure.
If you're in Merle's position, check your own papers against this list:
Owner pay and the entity
Ask for the fixed-asset schedule and the written structure memo now. Both take months to produce, and both change what a sale costs you in tax.
- Year-end IRA statements and the age your RMDs start
- Your most recent Form 1040
- Three years of shop statements and who prepared them
- The CPA's fixed-asset schedule with tax basis per machine
- The IRS acceptance letter for any S election
- The current retirement plan document, if there is one
How much should go into a retirement plan before the sale?
For 2026 the IRS limit on 401(k) deferrals is $24,500, plus an $8,000 catch-up at age 50 and over, for $32,500 in total. Ages 60 through 63 get an $11,250 catch-up instead. Employee and employer contributions together cap at $72,000. Merle, at 68, uses the $8,000 catch-up.
A hypothetical household shows why age matters. Merle, 68, plans to sell his $2.5 million shop at 71. A hypothetical neighbor with an identical shop and sale date is 58, and age is the only difference. Each adds a shop 401(k) and defers $32,500 a year ($24,500 plus the $8,000 catch-up), or $97,500 over three years. Assuming a 30 percent tax rate for illustration, each skips $29,250 of tax now ($97,500 × 0.30).
Merle's RMDs start at 73, two years after closing, on top of $900,000 already in IRAs. The $97,500 likely comes out at a similar rate, so the deposit mostly shifts tax to a later year. The neighbor's RMDs start at 75, leaving 14 years after a sale at 61 to draw it down in lower-income years. That's a likely saving. You can test your own numbers with the calculator on this site.
Count the cost, too. A safe-harbor 401(k) in a shop with employees means employer contributions for the long-time machinists, who may be the buyers. Before Apollon Wealth Management suggests a plan, it sets those contributions next to the tax Merle would defer. Sometimes the plan costs more than it defers.
A new 401(k) for a calendar year has to be set up before deferrals start, so it belongs near the top of the three-year list. Rule of thumb: if your RMDs start within five years of the planned sale, treat new pre-tax deposits as moving tax to a later year rather than saving it. Make them only when your rate now is clearly higher than the rate you expect once RMDs begin.
Merle and the 58-year-old neighbor
What a plan costs in a shop with employees
| Decision and deadline | Criterion to pass | Who acts | What you receive |
|---|---|---|---|
| 36 months: statements | Three years buyers accept | CPA | Reviewed statements each year |
| 30 months: owner pay | Matches a hired manager's cost | Owner and CPA | Pay memo for buyers |
| 24 months: plan deposits | Fits the years until RMDs | Advisor and plan provider | Yearly contribution amounts |
| 18 months: entity | Five-year built-in gains clock checked | CPA and attorney | Written structure memo |
| 12 months: sale-year tax | Medicare tier two years later | Advisor and CPA | Projection for three tax years |
| Closing year: estimates | Quarterly payments made on time | CPA | Payment schedule with dates |
What age the Medicare surcharge reaches back to
Merle's sale year at 71 sets his Medicare premiums at 73, the same year his RMDs begin. Under the 2026 schedule a single filer above $500,000 of income pays $689.90 a month for Part B instead of $202.90. That's $487 a month, or $5,844 for the year ($487 × 12). It lasts one year if income drops back, so it's worth knowing before you choose a December or a January closing.
How long after closing the deadlines keep running
Signing sets the clock. The closing date fixes the tax year of the gain. Estimated tax payments follow on April 15, June 15, September 15 and January 15, and the return reporting the sale is due the April after closing. The Medicare surcharge shows up two years after the sale year, and the first RMD is due by April 1 of the year after Merle turns 73.
Things go wrong, so leave room. The deal can fall through in diligence, so don't make gifts or plan deposits you can't unwind while you still need the cash. Markets can fall right after the proceeds are invested (returns are never certain, and invested proceeds can lose value), so keep about a year of spending outside the shop. Health can change, which is why the daughter who works in the shop should know where the papers are. And the law can change: today's $15,000,000 per-person estate exclusion is well above Merle's numbers, but limits move.
Consider a mistake made by a longtime CPA who expensed every new machine in its first year. That leaves the equipment with near-zero tax basis. If the shop is sold as assets, the depreciation already taken comes back as ordinary income in the year of the sale, up to the full amount. Catch it three years out. Ask for the fixed-asset schedule with each machine's tax basis and a rough recapture figure, while there's still time to plan the structure.
One caveat: none of this timeline sets the price of the business.
What can go wrong, and the room to leave
The depreciation surprise
The accounts Apollon Wealth Management opens before any sale date is set
Apollon Wealth Management looks first at Merle's IRA year-end statements, his RMD start age and his most recent Form 1040, then at the shop's last three years of statements and the fixed-asset schedule. From those it lays out the sale-year income and the two years after it, so each decision on the list has its numbers next to it before a date is picked.
A deposit that saves 30 percent today and comes out at 30 percent later hasn't saved anything. It has only moved the tax.
Your questions about how to prepare a business for sale, answered
What happens if the buyer backs out after I've spent a year cleaning up the books?
You keep the work. Reviewed statements, a documented owner pay level and a fixed-asset schedule help with the next buyer or an employee sale. Retirement deposits already made stay in the plan. What you lose is time and fees, so avoid commitments you can't unwind until the deal is closed.
My shop already has a SIMPLE IRA; should I switch to a 401(k) three years before selling?
Only if the extra deferral is worth the cost. The 2026 SIMPLE IRA limit is $17,000 against $24,500 for a 401(k) before catch-ups. But a 401(k) may mean employer contributions for staff and plan administration fees. Compare those costs with the tax you'd defer, given how close your RMDs are.
Can I revoke an S corporation election later if a buyer wants a different structure?
Yes, an S election can be revoked, but the IRS generally bars a new election for five years afterward. Revoking also turns the company back into a C corporation, which can change the sale's tax cost. Have your CPA and attorney model it first.
How many years of financial statements do buyers of a small business usually ask for?
Three years is the usual request, and lenders financing an employee or outside buyer often want the same. Reviewed statements carry more weight than compiled ones. Tax returns for those years should match the statements, or you'll need a written reconciliation ready for diligence.
Does selling the business in the year I turn 71 raise my Medicare premiums?
It can, two years later. Medicare sets premiums from income two years earlier, so a sale at 71 affects your premiums at 73. Under the 2026 schedule, a single filer above $500,000 pays $689.90 a month for Part B instead of $202.90, for one year if income falls.
Should I keep making 401(k) deposits in the year the business closes?
Often not, if the sale pushes that year's income into a high bracket and the deposit only shifts tax to a later year. It can also make sense, since deferrals reduce income in a peak year. Run the numbers with your CPA before closing, because the plan's rules and the deal's timing both matter.
Read the rules at the source
This content is general information only and does not constitute investment, tax or legal advice tailored to your circumstances. Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. Consult a qualified professional before making any financial or legal decision.