In many straightforward transactions—such as the sale of a pass-through entity like an LLC or S-corp—proceeds are typically taxed as capital gains at the federal level. Depending on where you live, state capital gains taxes may also apply.

For founders in high-tax states, state taxes alone can materially reduce proceeds. Combined with federal capital gains, this may result in the highest tax rate you’ve ever paid on a single event.

This is the baseline—but it is not the whole story.