IRC Sec. 1202 Exclusion of Gain on Qualified Small Business Stock

The Qualified Small Business Stock (QSBS)/IRC Sec. 1202 exclusion is a little-known benefit available to C corporation shareholders. IRC Sec. 1202 was enacted in 1993 with the goal of encouraging long-term investment in startups and other small businesses by exempting capital gains from taxation on the sale of stock in these entities.  Prior to 2013, the maximum long term capital gains (“LTCG”) rate was 15% and the effective tax rate on IRC Sec. 1202 gains was 14%, giving taxpayers little incentive to claim the exclusion. In 2013, LTCG rates increased to a maximum 23.8% and brought the benefits of IRC Sec. 1202 into the spotlight. Furthermore, the enactment of the 100% gain exclusion for QSBS and changes made by the Tax Cuts and Jobs Act to corporate tax rates have combined to make QSBS a more attractive option than in the past.

IRC Sec. 1202 allows holders of QSBS to exclude 50% to 100% of capital gains on the sale of QSBS. The amount of gain eligible for exclusion is limited to the greater of $10 million or 10 times the taxpayer’s basis in the QSBS.

EisnerAmper can assist you with IRC. Sec. 1202:

  • Determine eligibility for the IRC Sec. 1202 exclusion
  • Document IRC Sec. 1202 eligibility
  • Calculate IRC Sec. 1202 gain exclusion 
  • Assist with procedural requirements in order to claim the IRC Sec. 1202 exclusion
  • Provide tax planning, including choice of entity analysis
  • Determine eligibility for the IRC Sec. 1045 tax deferral

With rising taxes on the horizon the IRC Sec. 1202 exclusion is more relevant than ever. EisnerAmper can assist your business to determine QSBS eligibility.

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About Benjamin Aspir

Benjamin Aspir is a Senior Manager and a member of the firm’s National Tax Group, with more than 10 years of public accounting experience. He has extensive experience with IRC Section 1202 - Qualified Small Business Stock and advising cannabis clients on IRC Section 280E, within the Manufacturing and Distribution practice.

About Kayla Konovitch

Kayla is a Partner in the Financial Services Group with over 10 years of experience in public accounting. She provides tax consulting services, including advising on tax strategy, transactions, and accounting matters to clients. Kayla specializes in working with private equity funds, venture capital funds, hedge funds, family offices, and management companies.

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