How do you expect the recent election to impact QSBS in the state?
After the results of the 2020 election were certified, we’ve seen QSBS investors take several potential tax law changes into account in their investment strategy. There have only been talking about the potential tax law changes under the Biden administration so far, however much speculation on what’s to come.
For example, changing long-term capital gains rates to be taxed at ordinary rates when income exceeds $1M. Or increasing the corporate income tax rate from 21% to 28%. Also, the potential removal of any step-up tax basis when inheriting assets from a decedent’s estate, the reduction of the estate tax exemption from the current $11.7M down to rumored $3.5m, and the rumored restriction of various valuation discounts such as the lack of marketability discount have made some QSBS investors holding highly appreciated stock anxious.
In Arkansas, we’ve been seeing some QSBS investors who plan to sell their shares in the near-term accelerate their timeline by selling their shares in early 2021. Some even sold their shares before December 31, 2020, shortly after the election. Although the Biden administration has not indicated they would alter the current QSBS statutes, some investors prefer not to take any chances.
What types of innovations excel in the state?
In Arkansas, real estate and construction activities have been leading the way for the past few years. In the most recent Business Forecast Luncheon held on January 29, 2021, several economists spoke about the Arkansas economy, and of few industries that grew in 2021, construction was consistently one of them.
How does the state support entrepreneurship?
Start-up companies and local businesses have been excelling in Arkansas. In Little Rock, there are various technology office parks to encourage talent to move to the city and to increase new forms of businesses and collaboration. Start-up companies in Northwest Arkansas can really thrive with the support found in the area. For example, Startup Junkie and One Million Cups are platforms that support entrepreneurs in growing and scaling their businesses.
The State has been doing several things to encourage talent to move here and to support entrepreneurship. The governor of Arkansas, Asa Hutchinson, signed the 5.9 tax plan in February 2019, which reduces the highest marginal individual tax rate in 2021 to 5.9%, making the state more competitive with its neighboring states. In Northwest Arkansas, the Northwest Arkansas Council is offering top remote working talent an incentive to move to the area. They are offering qualified individuals $10,000 and their choice of either a street bike or mountain bike should they relocate to the area.
There are also a variety of Arkansas income tax credits offered to qualified businesses in certain industries. The Arkansas Economic Development Commission website has a comprehensive list of these incentives that are centered around job creation, equity investment, and sales tax reductions or exemptions.
What should our audience know about your state?
Arkansas has an extremely low cost of doing business within the state along with a community that supports small businesses and entrepreneurs. The cost of living is also low, making the state a friendly place to do business.
About Mark Greco
Mark has more than 13 years of experience providing tax and consulting services for clients. He regularly assists clients in the real estate, manufacturing, and distribution industries.
His expertise includes providing year-round tax guidance for partnerships and S-corporations and their individual owners, advising clients through 1031 exchanges, Qualified Opportunity Zone Funds, and restructuring transactions.
Mark is a member of the American Institute of Certified Public Accountants and the Arkansas Society of Certified Public Accountants. He holds CPA licenses in the State of Arkansas and California. He serves on the board of the Northwest Arkansas Continuum of Care in Fayetteville, Arkansas. He is a 2008 graduate of the University of Southern California with a B.S. degree in accounting and a B.S. in business administration.
Feel free to reach out to Mark at BKD for QSBS, OZ, and other tax planning questions!
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.