Tax Breaks for Those Investing in Small Businesses

Alan L. Olsen, CPA, MBA (tax)

By Greenstein, Rogoff, Olsen & Co.
Posted: 5/21/10

As the Obama administration focuses on small businesses as the engine that will drive the country’s economic recovery, investors should consider the tax breaks available from buying small business stocks.

“Section 1202 of the Internal Revenue Code grants relief to investors who risk their funds in new ventures, small businesses and specialized small business investment companies,” says Alan L. Olsen, CPA and managing partner with Greenstein, Rogoff, Olsen & Co., LLP (GROCO®). “Non-corporate investors may exclude up to 50 percent of gain they realize on the disposition of qualified small business stock issued after August 10, 1993 and held for more than five years.”

Olsen says that there are several requirements taxpayers and the companies they invest in must meet in order to qualify for the exclusion. ***

“These include stipulations that a company must be a specific type of C corporation, must meet a gross assets test, and must use at least 80% by value of its assets in the active conduct of a qualified trade or business,” says Olsen. “Stock will not qualify for the exclusion if the issuing corporation engages in a significant redemption. There is also a cumulative limit on the gain from a single issuer that a taxpayer may exclude. Taxpayers must also consider how claiming an exclusion will affect the rest of their tax planning.”

Mr. Olsen’s tax experience includes working with some of the most successful entrepreneurs in the world. His clients include individuals who have helped build companies such as Google, Skype, eBay, Oracle, Sun Microsystems, Compac, and AOL. His firm, GROCO, has been named one of the Best-Managed CPA Firms in the U.S. by Inside Public Accounting.

Mr. Olsen is available to discuss the gain exclusion available for taxpayers who invest in small business stocks, as well as the requirements that must be satisfied, and how to include this option as part of an overall tax planning strategy.