If you have stock options you could be in for a big surprise because the various tranches of stock options can qualify for the QSBS 100% capital gains tax exclusion depending on when the stock holding period starts, whether the company is a qualified business, and when … Read More
Another avenue could be to create a management holding company where the insurance, finances, and payroll are managed.
According to the AICPA, a qualified small business for Section 199A QBI can be a management holding company. Tax accountants and lawyers have been looking to Section 199A for … Read More
This scenario is a typical transaction structure that PE funds will utilize.
When a fund is acquiring a members interest in a pass through entity and not stock in a corporation the fund will set up a blocker corporation so that the income is not passing through … Read More
The below graphic illustrates a PE fund acquiring the assets of an existing company.
The PE fund will then form a new corporation and contribute the assets at FMV to the corporation in return for newly issued shares of QSBS. Remember… this can only be done if … Read More
The graphic below illustrates the ownership structure after 100% of the stock is acquired in a qualified small business.
The PE fund would form a holding company that would issue QSBS to the PE fund after infusing capital into the holding company. The holding company would then … Read More
Purchasing existing stock or assets in a company does not qualify as qualified small business stock (QSBS). QSBS has to be newly issued stock and qualify as a Section 1202 qualified small business. Refer here for details on what constitutes a qualified small business.
Section 1202 of the … Read More
The transfer of QSBS through a gift or estate is considered a tax-free transfer for QSBS and maintains the tax exclusion upon transfer (Section 1202 (h)).
Given the differing tax treatment of various types of gifts, it can become important to understand various differences in ways “gifts” are made when planning, … Read More
Individuals and “pass-through” entities can benefit from QSBS tax savings, but corporations investing in otherwise QSBS eligible entities cannot.
A pass-through or flow-through entity is a legal structure that does not pay income taxes at the business level but passes earnings to its owners to be taxed at … Read More
QSBS can only be purchased directly from the qualifying QSBS C Corporation at its original issue. Therefore, stock that would otherwise qualify as QSBS loses this favorable status after it has been purchased through a secondary sale.
QSBS can be acquired through:
An exchange for any property, not including stock. QSBS … Read More
As noted in this article, the QSBS tax exclusion has increased several times since first implemented in 1993. Therefore, “when” QSBS was acquired impacts the magnitude of the potential tax exclusion. Additionally, “how” the QSBS was acquired impacts whether or not the stock is eligible for QSBS … Read More