Qualified Small Business Stock Tax Exclusion for Investing in a CorporationBy James Blake on
There’s never been a better time for angel investors or venture capitalists to invest in a corporation – that’s what some folks are saying about the one-time corporation startup tax exemption under the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. But as any Texas corporate lawyer will tell you, the corporation startup tax exemption may be an illusory incentive for a tax exclusion that never materializes for many investors.
Tax Exclusion for Corporate Qualified Small Business Stock
For corporate stock investors who actually cash in on the Corporate Qualified Small Business Stock Tax Exclusion, the reward can be great. Investors can enjoy these tax exclusions:
• No tax on “Qualifying Gain” up to $10 million; or
• No tax on “Qualifying Gain” up to 10X investor’s basis in corporate stock.
However, to qualify for this investor tax exclusion, you must fit within a number of requirements, making it important to consult a Texas corporate attorney.
C-Corp Only – No S-Corp, LLC, or Partnership Tax Exclusion
The qualified small business stock tax exclusion is only available to an investor in a C-corp, in its first corporate stock issue, and an investor must purchase the stock before January 1, 2011. Investors in an S-corp, LLC, or partnership do not qualify. Further, the corporation startup tax exemption does not apply to a HUGE range of types of companies, including law firms, healthcare service companies, restaurants and hospitality companies, architecture and engineering companies, and many, many others, so consult with a Texas corporate attorney before you make the decision to invest in a corporation if you want the qualified small business stock tax exclusion.
Our Austin business law firm regularly consults investors, corporations, LLCs, and partnerships. Talk with a Texas corporate attorney before making your investment and business decisions to make sure you’re on the right course.
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