Gain from Sale of Small Business Stock May Be Excluded from Income

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Small businesses have been the growth engine of the U.S. economy. Congress has provided a variety of incentives to encourage taxpayers to invest in small business, one of these being the exclusion of gain earned from the sale of qualified small business stock (QSBS). Small business owners may exclude their gains on qualifying C-corp stock issued after September 27, 2010 up to ten times their basis or $10 million from the sale of their corporate stock, whichever is greater. In order to qualify for the exclusion, the stock in the active business must be held by the shareholder for at least five years before it’s sold. Income eligible for this gain exclusion is also excluded from both Alternative Minimum Tax (AMT) and the 3.8% Net Investment Income Tax!

This attractive tax preference had expired December 21, 2013, but has been brought back to life and made permanent with the passage of the Protecting Americans from Tax Hikes (PATH) Act in December 2015. This creates additional opportunities for those planning to acquire or start a new small business. When deciding on which entity type to operate your business, remember this tax advantage for C-Corporations.

For additional discussion on what this means to you, please contact our office.

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