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
Long-term capital gains are generally taxed at a maximum rate of 20% plus the 3.8% net investment income tax (NIIT). One Biden administration proposal would replace these rates with ordinary income rates for taxpayers earning more than $1,000,000. This could cause higher earners to pay as much … Read More
Maybe the best place to look to predict the Biden administration’s approach to QSBS are the policies enacted under the Obama administration. The Obama administration enacted two pieces of legislation impacting QSBS: Small Business Jobs Act of 2010 (“2010 SBJA”) – prior to 2010, the QSBS exclusion was raised … Read More
Among the many questions regarding changes that will be implemented by the Biden administration are the potential for changes to tax policy. The tax plan released by Biden before the election included a number of policies that would raise taxes on individuals with income above $400,000, including raising … Read More
If the stock was acquired directly from the qualifying QSBS corporation at the original issue, the acquisition date for QSBS purposes is the purchase date. However, the acquisition date for QSBS purposes varies if the QSBS was received in another way, such as compensation for services performed, … Read More
If a taxpayer’s capital gains exceed the QSBS limitations, the gain above the limitation will be subject to capital gains taxes at a maximum rate of 28%. Additionally, the additional gains could be subject to Net Investment Income Tax (NIIT) of 3.8% for high earning taxpayers. As an example, ABC, Inc. issued $2 … Read More