Capital Gains on Selling an Ohio Business

When Ohio business owners sell their companies, taxes on capital gains can significantly reduce the wealth they retain. This article explains capital gains on the sale of a business, how transactions are taxed in Ohio, and considerations for taking advantage of the lower tax rates. You can use this knowledge to keep more proceeds when you sell your business.

The tax information applies to returns filed in 2026, affects your capital gain tax liabilities, and how it will impact your financial future. For specific legal and tax circumstances guidance, consult a qualified tax professional to help manage your capital gains tax liabilities.

What are Capital Gains? 

A capital gain is the profit earned on the sale of an asset that increased in value over the holding period. Capital assets include stocks, real estate, crypto, and private businesses. Any tangible or intangible asset that has the potential to increase in value over time.

Capital gains can be realized or unrealized. Realized capital gains are gains that you have captured by selling the asset. Unrealized gains, by contrast, refer to the increase in the value of an investment that you have not yet realized by selling it. For instance, if you hold stock that increases in value but haven’t sold it yet, that is considered an unrealized capital gain. Generally, you will not pay taxes until you cash out or realize the gains.

Long-Term and Short-Term Capital Gains

There are two types of realized capital gains:

  • Short-term capital gains: 

    These are gains from selling assets that you’ve held for one year or less. At the federal level, short-term capital gains are taxed at the same (higher) rate as ordinary income.

  • Long-term capital gains:

    These are gains from selling assets that you’ve held for more than a year. At the federal level, long-term capital gains are subject to more favorable tax treatment than short-term gains.

How are Capital Gains Taxed?

The 2017 Tax Cuts and Jobs Act (TCJA) brought sweeping changes to the tax code, impacting every taxpayer and business owner. Many provisions of the TCJA are set to expire at the end of 2025. Without new legislation, many provisions will revert to 2017 levels, adjusted for inflation.

The TCJA introduced new, lower tax rates and increased the income thresholds at which each new marginal tax bracket applies. For example, in 2017, the marginal tax brackets were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. From 2018 to 2025, the brackets dropped to 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Capital gains are not taxed until realized, meaning that even if your Apple stock has increased 15 times since the date of purchase, you won’t owe any taxes on capital gains until you sell the stock in your brokerage account. Of course, once you sell the stock, you will face federal and state taxes in Ohio.

The tax rate varies depending on your income and the type of asset you sell. Still, the rates are generally progressive, meaning individuals with higher incomes tend to face higher capital gains tax rates. Let’s examine how federal and state governments tax capital gains.

Short- and long-term capital gains are taxed differently; assets held for one year or less are taxed at ordinary income rates, while assets held for more than one year are taxed at lower rates.

The short-term capital gains schedule aligns with the schedule for ordinary income, and your marginal and effective tax rates depend on your income and marital status.

Marginal Tax and Long-Term Capital Gain Rates

Marginal Taxes

For the 2025 tax year, the rates are listed below.

  • 37% for incomes greater than $626,350 ($751,600 for married couples filing jointly).
  • 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
  • 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
  • 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
  • 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
  • 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
  • 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).

Long-Term Capital Gains

Long-term capital gains, meanwhile, are taxed at a lower rate than ordinary income. Here, too, the precise rate depends on the individual’s income and marital status.

  • 0% up to $48,350 for singles (Up to $96,700 for married couples filing jointly).
  • 15% up to $533,400 for singles (Up to $600,050 for married couples filing jointly).
  • 20% over $533,400 for singles (Over $600,050 for married couples filing jointly).

Compared to 2024, the annual inflation-adjusted changes reflect a 2.8% increase across all brackets and filing statuses.

What Is the Ohio Capital Gains Tax?

Unlike the federal government, Ohio does not make a distinction between short-term and long-term capital gains – or even between capital gains and ordinary income. Instead, it taxes all capital gains as ordinary income, using the same rates and brackets as the regular state income tax:

  • The first $26,050 is taxed at 0%
  • The next portion, from $26,050 to $100,000, is taxed at 2.75%
  • Finally, the remaining $100,000 or greater is taxed at 3.5%

What is Tax Planning?

Capital gain taxes can significantly reduce your net earnings from the sale of assets. Accordingly, it’s critical to identify strategies that can reduce these taxes.

Tax planning is a strategic approach to reducing a person’s tax liability by leveraging various tax benefits and allowances. It’s about understanding the tax implications of your financial decisions to minimize taxes and, ultimately, keep more of your hard-earned money.

This may involve making investments that offer tax benefits, selecting the appropriate type of retirement account, utilizing available deductions and credits, or establishing a tax-advantaged trust or other tax-efficient vehicle.

Method to Reduce Taxes

Seller financing, also known as owner financing, can reduce taxes on capital gains. It occurs when a business owner agrees to provide a percentage or all the funding to the buyer rather than the buyer obtaining financing from a commercial lender.

The principal amount the seller receives is generally treated as a sale of the business, and any gains on the sale may be subject to capital gains tax. The annual interest paid from the note is typically subject to income tax.

Consult a Tax Professional

Please be advised that the information contained in this article is provided for informational purposes only and should not be construed as legal advice. As with any significant business transaction, it is highly recommended that you consult with a tax professional to understand the specific tax implications of selling your business in Ohio, including potential deductions and filing requirements.

Conclusion

Capital gains taxes can significantly reduce one’s wealth. Fortunately, several strategies are available to minimize these taxes.

If you know someone considering this lifestyle change, we would appreciate the opportunity to speak with them about their transition.

Please refer this business owner to us for a friendly, confidential conversation.

About This Central Ohio Acquisition Company

Expanders, Inc. acquires and operates privately held Central Ohio companies when their owners experience life-changing events or are ready to retire. The Expanders buy-grow-keep strategy entails investing in established businesses with significant potential for growth. This process of sustained growth compounds shareholder value over time.