Legal Alert - Excluding 100% of Gain From the Sale of Qualified Small Business Stock Acquired in 2013
by Bahar A. Schippel and William A. Kastin
If you own a small business, it may be easier to raise money in 2013. This is because, among the favorable tax breaks included under the American Taxpayer Relief Act (the “2012 Act”), there is a temporary extension of the 100% exclusion of gain arising from the sale of certain qualified small business stock (“QSBS”). Under the right circumstances, for QSBS acquired during 2013, 100% of the gain from the sale of such stock will not be taxed, including under the alternative minimum tax (“AMT”) rules. With an effective tax rate of 0%, this is an extremely favorable tax provision and benefits both investors and businesses looking to raise equity. And, it comes at a time when the effective tax rates on gains from the sale of capital assets have increased for certain “high-income taxpayers” from 15% to 23.8% (after taking into account a new 3.8% tax on net investment income discussed below). But, as with most tax breaks, there are limitations and exceptions to this general rule. As such, businesses looking to raise equity should familiarize themselves with the QSBS requirements.