Just because the Internal Revenue Service (IRS) does not require the taxpayer to provide any documentation when electing the Section 1202 capital gains tax exclusion on the sale of QSBS, does not mean that you don’t want to have your documentation in order.
Prior to the IRS seeing your tax return, your tax preparer will want to ensure that you performed your diligence in making sure that your stock appears to have been QSBS.
Section 1202 can be thought of as a rare or unconventional election on an individual tax return, which can cause the tax return to stand out or be flagged. Therefore, it is crucial to have gathered documented proof that the QSBS does pass all of the requirements laid out by Section 1202. Below are the documents to collect:
- Articles of Incorporation
- Stock Purchase Agreement
- Corporate Tax Returns and financial performance information
- Any representations made by the company regarding your stock qualifying as QSBS
- A Stock Sale Agreement
We can help you evaluate and support that your stock qualifies as QSBS, so please let us know if you need help.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.