Louisiana follows the section 1202 100% tax exclusion on capital gains from the sale of QSBS. Therefore, capital gains on the sale of QSBS will not only be excluded from federal income taxes, but also state income taxes if all of the guidelines are followed.
Federal QSBS Exclusions and State Tax Implications
Allowing capital gains tax exclusions for Qualified Small Business Stocks (QSBS) encourages investment in US small business. QSBS laws help provide capital for these businesses while offering a savvy tax strategy for investors who want to minimize capital gains taxes.
Investors who hold qualified small business stock for at least 5 years can exclude up to $10,000,000 or more of their recognized capital gains from their taxable income if certain criteria are met.
Each state has its own treatment of QSBS gains at the state income tax level. There are three ways in which states typically address the exclusion.
- Some states fully conform to the Federal QSBS guidelines, and therefore allow a full exemption if the stock meets the Section 1202 QSBS criteria. States conform to the federal tax code on either a static or rolling basis. “Static” conformity means the state starts conforming to the Internal Revenue Code as of a specific date. “Rolling” conformity means that the state adopts IRC changes as they occur. Alternatively, certain states do not have state income taxes and therefore there is no QSBS implication at the state level.
- Some states partially conform to the Federal QSBS guidelines, whereby the capital gains from QSBS are exempt if additional criteria beyond the Federal guidelines are met, such as only allowing exemptions if the QSBS gains were from a company doing business in that state.
- Lastly, certain states do not allow any capital gains exclusions for QSBS.
Louisiana QSBS Exemptions
Louisiana follows the Section 1202 100% tax exclusion on capital gains from the sale of QSBS. Therefore, capital gains on the sale of QSBS will not only be excluded from federal income taxes, but also state income taxes if all of the guidelines are followed.
Louisiana follows the “Rolling” conformity–as stated in the previous paragraphs. Louisiana does, at the Corporate level, conform to the federal treatment of capital gains and losses. See La. Rev. Stat. Ann. § 47:287.65; see also La. Rev. Stat. Ann. § 47:287.701(A). The statutes state that the term “federal law” in provisions will refer to I.R.C. of 1986. Louisiana does, at the Individual level, generally conform to the federal partial exclusion for gain from certain small business stock, but Louisiana limits the deduction based on the number of years the entity was domiciled in the state. See La. Rev. Stat. Ann. § 47:290; see also La. Rev. Stat. Ann. § 47:293(9a)(xvii).
Louisiana Capital Gains Tax Rates
Louisiana taxes capital gains at the same rates as regular income. They have 3 tax brackets ranging from 2% for those making under $12,500 up to 6% for those making over $50,000.
In comparison, federal capital gains tax rates are lower than regular income tax rates and for single taxpayers are:
- 0% for $0 to $39,375
- 15% for $39,376 to $434,550
- 20% for $434,551 or more
Entrepreneurship in Louisiana
Go.Be., formerly the Good Work Network, helps entrepreneurial minority small businesses by connecting them with the necessary resources to build a successful business in the state of Louisiana. Their programs include Level Up, Elevate Fund, and Mastering Money.
The Louisiana Entrepreneurship & Economic Development Center (LEED) is a program which serves the entire state of Louisiana in their mission to, “strengthen and diversify the economy through relationship-based entrepreneurship and economic development programming to build a better Lafayette, a thriving Acadiana, and a stronger Louisiana.”
Louisiana’s Top Industries According to the LED
Among other industries, the following industries in particular thrive in the state:
- Advanced manufacturing
- Process industries
- Software development
- Water management
Non QSBS Tax Credits for Louisiana Small Business Investors
The state of Louisiana offers an Angel Investor Tax incentive for those who invest in early-stage startups that meet certain criteria. These investors can benefit from a “25% tax credit on investments by accredited investors who invest in businesses certified by Louisiana Economic Development as Louisiana Entrepreneurial Businesses (LEB).”
Additionally, the state is home to 150 opportunity zones which carry their own tax incentives for investors who make long-term investments in low-income communities.
Louisiana Opportunity Zones
Louisiana is home to approximately 150 Opportunity Zones census tracts.
Opportunity Zones (OZ) were created to help economically distressed areas by giving investors preferential tax treatment with new investments in these “specified” areas. Similar to QSBS, if the investment meets eligibility criteria and is held for at least 5 years, the investor can defer or be exempted from capital gains taxes (i.e. if held for at least 5 years, the taxpayer can exclude 10% of the gain and the percentage increases (or “steps up”) to 15% after 7 years).
Opportunity Zone investments can be in the stock of an OZ Qualified Business, an OZ partnership interest or an OZ business property.
To be a Qualified Opportunity Zone Business, the business must meet requirements such as at least 50% of the business’s total gross income being derived from within the Opportunity Zone. To learn more about Opportunity Zone qualifications, please refer to Opportunity Zones and QSBS article.
Under 26 USC 1400Z-2, Louisiana made Opportunity Zones, is also home to the associated tax relief incentives that accompany these zones which are effective for tax years beginning on or after December 31, 2017.
Some examples of Opportunity Zone projects in Louisiana include:
- Legends Plaza Community Center
- Baits Motel
- Handy Stop Market & Cafe
See more at, and others found at Louisiana Opportunity Zones.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.