Jeff, of course, I've had clients sell the type of stock you question, but I've never had one sell their business as a stock sale.
I figured the light bulb would go on with my comment, but I guess it didn’t. Here, let me help: The sale of 1 share of IBM isn’t a lot different than the sale of 100% of Smallco stock. The ownership of the shares simply changes. Proceeds minus basis equals gain. We have holding period in both situations too. The only thing that would make it different, with respect to a straight-up stock sale, is if something like Sec 1202 were at play, as Synchros’ notes. And any financing arrangement is just that and doesn’t really impact the tax theory/gain calc.
I need to become more aware of how this is going to work, what will be subject to GE Tax in Hawaii, if any.
That is a state-specific question, so you’ll have to figure that out on your own. Seems like the answer should be pretty easy to find. Are gains from stock sales subject to tax or not?
What about things like a Covenant Not to Compete?
Ordinary income, not subject to SE tax. And if he agrees to a consulting agreement, that would go on Schedule C and he’d make a SEP contribution.