Carta, an ownership and equity management platform with a deep understanding and influence within the American startup ecosystem serving over 20,000 corporations, has published its stance on the proposed policy to limit the QSBS exemption. As a reaction to the House Ways and Means Committee’s proposed amendment to Section 1202, which would limit the QSBS tax exclusion to 50% for taxpayers with an adjusted gross income of $400K or greater; Carta has declared,
“Curtailing the QSBS exclusion will diminish incentives to fund early-stage growth companies and the jobs they create. It will prevent employee-owners from realizing the full value of the ownership they have earned. And it will remove a key investor incentive to support fledgling, potentially high-growth companies.”
For 30 years, investors, owners and employees of startups have been incentivized to build the innovative businesses that are responsible for nearly 30% of the job growth in America with a tax exclusion known as Qualified Small Business Stock. The benefit of owning and holding QSBS has historically been a 50%, 75% or more recently, a 100% exclusion of eligible capital gains from federal taxes. This exclusion percent is currently dependent upon the date of issuance of the qualified stock.
Although Section 1202—which outlines QSBS—has received bipartisan support over its lifetime, if passed as is, the amendment to the Build Back Better legislation would limit the incentive to American taxpayers with an AGI over $400K which includes many investors and founders of startups and small businesses. Weakening QSBS could devastate the American entrepreneurial ecosystem which is a pillar to our modern economy. We at QSBS Expert are proud that Carta stands with entrepreneurs who have taken on great personal risk to solve major problems, and we are proud to work with Carta to help save QSBS.
“Policymakers should encourage this equity ownership. We want employees to join and help build these companies. And if a company succeeds, its owners—the investors that funded its innovation and growth, as well as the employee-owners who helped build it—deserve the reward. Our innovative startup economy depends on these equity incentives.”
We understand the value that Section 1202 offers to incentivize founders, investors, and employee-owners and have witnessed the growth of investors interested in supporting high-risk start ups with promise for growth and innovation. QSBS Expert stands with industry representatives, like Carta, to fight this legislation and preserve the existing QSBS exclusion.
Startup Innovation fuels tomorrow’s economy through job creation. And QSBS is the key incentive fueling Startup Innovation. Can we risk striping that away?
Join us in letting Congress know the detrimental and job-killing impact this bill could have on America’s startup ecosystem.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
