Federal Income Tax (invest now)

07 Nov

A friend and business associate, Jason Gay, came up with a Federal income tax item that everyone in the investing community needs to know.  I will give you all an excerpt from his e-mail here:

Something important came up in my Federal Income Tax class.  Section 1202(a)(4) of the Internal Revenue Code excludes 100% of the capital gain realized from the sale of stock acquired before January 1, 2012 from gross income for non-corporate taxpayers (up to a $10,000,000 gain under 1202(b)(1)(A), or 10 times the adjusted basis under section 1202(b)(1)(B) for a cash investor).

In other words, for sweat equity investors in a start up company, capital gains from the sale of stock issued between now and the rest of the year would be exempt from taxes for up to a $10,000,000 gain…

Of course I call on my other associates in the CPA community who came up with a blog link that really puts in perspective – here is the link. This friend, Steven Plumb at Clear Financials, had this to say:

The holding period is 5 years, so if you have something that qualifies for 5 years, it is helpful.  Must be a C corporation.  This credit has been on the books for a long time, but [Mr.] Obama reduced the tax rate from 14% to zero as a job creation incentive.  Unfortunately, a tax credit 5 years down the line doesn’t really provide much incentive to start a business today.

Bottom line, invest today as normal, but try to get the tax treatment if you can.

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Posted by on November 7, 2011 in BLOG



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