Qualified Small Business Stock: Maximizing the Section 1202 Exclusion for Startup Investors

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, December 7, 2022

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Course Materials

This course will explain how a business and its shareholders meet Section 1202 eligibility requirements for qualified small business stock (QSBS) to eliminate or reduce taxation of capital gains. Our panel of tax experts will discuss the corporate requirements, shareholder requirements, and the substantial tax savings available for qualifying stocks.

Description

Section 1202 offers taxpayers (other than corporations) the potential to permanently exclude from taxable income $10 million (and possibly much more) of capital gains recognized in connection with the sale of QSBS. For investors in certain startups, this can result in millions of cash-tax savings.

There are corporate qualifications, shareholder eligibility rules, and holding period requirements to qualify. The small business must have no more than $50 million in gross assets from inception until the date of sale, the company must be a qualified trade or business, and investors must hold the stock for five years. These are just a few of the many eligibility requirements. Shareholders not holding the stock for five years could preserve QSBS benefits by rolling over the sales proceeds outlined under Section 1045.

Listen as our panel of tax veterans discusses who can benefit from Section 1202, its requirements, the many traps for the unwary, and planning opportunities available so shareholders achieve maximum tax savings.

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Outline

  1. Qualified small business stock (Section 1202)
  2. Corporate requirements
    1. Defining a qualified small business
    2. Understanding the active business requirement
    3. Preventing eligibility foot faults
  3. Shareholder requirements
    1. Holding period requirements
    2. Ineligible share transfers
    3. Pass-through entities and QSBS
  4. Other common considerations
  5. Rolling over proceeds from the sale of QSBS (Section 1045)

Benefits

The panel will review these and other critical issues:

  • How can an eligible investor maximize their QSBS exclusion?
  • What stock is and is not eligible for the QSBS exclusion?
  • What are best practices to avoid Section 1202 ineligibility?
  • What is the current state of Internal Revenue Service challenges?

Faculty

Parker, Lance
Lance Parker
Senior Manager
Ernst & Young

Mr. Parker specializes in partnership taxation of mergers and acquisitions. He advises high-net worth individuals,...  |  Read More

Thomason, Lindsay
Lindsay Thomason
Manager
Ernst & Young

Ms. Thomason is a manager in the Passthrough Transactions Group at EY specializing in partnership taxation of mergers...  |  Read More

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