Purchasing stock in certain qualified small businesses, not only diversifies your portfolio but also allows for preferential tax treatment. A provision in the recently signed tax extenders bill, the PATH Act, now makes owning and selling such stock even more attractive from a tax perspective.

How does 100% exclusion from gain sound to you?

The PATH Act makes permanent the exclusion of 100% of the gain on the sale or exchange of qualified small business (QSB) stock acquired and held for more than five years. The 100% exclusion is available for QSB stock acquired after September 27, 2010, with smaller exclusions are available for QSB stock acquired earlier.

The act also permanently extends the rule that eliminates QSB stock gain as a preference item for alternative minimum tax (AMT) purposes.

What is Qualified Small Business Stock?

Qualified small business (QSB) stock is generally stock of a domestic C corporation that has gross assets of no more than $50 million at any time (including when the stock is issued).  The QSB must use at least 80% of its assets in an active trade or business. 

There are Many Factors to Consider

Of course tax consequences are only one of many factors that should be considered before making any investment.  Keep in mind that the tax benefits outlined here are subject to additional requirements and limits.  If you think you may have an investment that qualifies for this preferential tax treatment consult us for more help.

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