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President Obama Signs a Temporary Bill to Encourage More Angel Investing
- devmonk 16y agoText of the bill: http://www.opencongress.org/bill/111-h5297/text http://www.opencongress.org/bill/111-h5297/text And related tax code: http://uscode.house.gov/download/title_26.shtml http://uscode.house.gov/download/title_26.shtml
- jpwagner 16y agonote that this does not apply to any of the following types of businesses: • Businesses that performed services in health, law, engineering, architecture, accounting, performing arts, consulting, athletics, financial services or brokerage. • Businesses that have as their principal asset the reputation or skill of one or more employees. • Any banking, insurance, financing, leasing, investing or similar business. • Farming, mining or petroleum production. • Hotels, motels, restaurants and similar businesses.
- jbooth 16y agoJust wait till it makes it to Fox News tonight, it'll be explicitly for socialist private businesses. EDIT: Come on guys, that's really not funny at all? Socialist private businesses? Throw me a frickin' bone here.
- ireadzalot 16y agoI think it is funny.
- raheemm 16y agoHN community is ultra-cautious about upvoting humorous comments. This is likely because these types of comments quickly devolve into and encourage low-quality discussions. The exception is when the comment is extremely witty and contextual. Actually, it would be interesting if someone did an analysis of the top 100 humorous comments on HN - it would be very fascinating. Edit: I kinda had a fear that I would be downvoted for explaining.. oh well
- jerf 16y agoI especially don't upvote humor that is nothing more than social signal flashing. If your "humor" boils down to "Hurr hurr, them folks sure are teh dumb where we are teh smartz!", expect a downvote. That's toxic stuff, regardless of the target.
- jbooth 16y agoIn this case, it's political. The conservative end of the spectrum is borderline rabid right now, so comments implying things like "Fox News is comically untruthful" will be taken in an "us vs them" frame of mind. Regardless of Fox News's truthfulness. Downmod away.
- tchae 16y agoseems like 99% of consumer web/mobile based startups win with this bill!
- tptacek 16y agoIn other words, no consultancies or LLPs. Which makes sense, because otherwise existing firms might take advantage of this policy as a loophole escaping taxes.
- oiuytgfrtgyhuji 16y agoSo why does this only run for a few months - until the end of the year? If you want to encourage investment in startups doesn't this have to be permanent - not just a hand out for deals that are already in progress. (assuming it's not just a technical point that it needs a special bill for the current year and then becomes permanent as part of some other legislation)
- jpwagner 16y agoI don't have data to back this up, but I imagine sales increase more when a product is "on sale at a low low price" rather than the market price actually falling to that low low price.
- yock 16y agoYou timebox something to encourage immediate action. Making it permanent or even long term may encourage investors to wait for the market to improve before acting, which isn't ideal for a bill aimed at improving the market.
- oiuytgfrtgyhuji 16y agoThese deals take months to put together though - this is only sweetening deals that would go ahead anyway, or giving a quick tax loophole to anybody that can put together a fake deal quickly. It's like trying to boost car workers jobs by saying any new car bought today only is tax free - that doesn't exactly motivate makers to open new plants.
- jeffreymcmanus 16y ago"The investor must not be a corporation" seems key. Do angel investors really invest out of their own bank accounts or do they form LLCs for this?
- danielayele 16y agoangels usually invest as individuals or via LLCs and super-angels and VCs are usually structured as partnerships so the exclusion won't apply to most active early stage investors.
- WildUtah 16y agoPass-through entity investors such as S Corporations, partnerships, and LLCs have special provisions to share the advantages with their owners. Read the law for details; the accounting could get complicated.
- deleted 16y ago[deleted]
- fleitz 16y agoWhat a weird bill, it only affects a 4 month period, what is so special about Sept 27, 2010 to Jan 1, 2011?
- lukifer 16y agoOne hypothesis might be that a more long-lasting bill is being drafted, and this an interim solution.
- anamax 16y ago> One hypothesis might be that a more long-lasting bill is being drafted, and this an interim solution. A more realistic hypothesis is that they've figured out that a long term approach is dumb. A bill that has to be renewed every six months gives folks two reasons a year to "help" the legislators. Remember, "reform" means "we need to get more money from supporters".
- jbooth 16y agoThat's 2009 thinking. You know how much work it is to round up 1,000 $2,300 donations? Just get one guy to write a $2 million dollar check to the Chamber of Commerce and you're good to go. After all, it's freedom of speech, according to the Citizens United ruling.
- Bricejm 16y agoThe Bush tax cuts expire at the end of 2010. This is just temporary until the new adiministration can pass their tax legislation which will probably include something similar to this.
- runT1ME 16y agoI have money in my own personal savings. I also am on the verge of incorporating. Can I invest some of my own money to save some money in taxes down the line if I pay dividends to investors?
- WildUtah 16y agoDoes this have to be an ordinary corporation, or does an LLC taxed as a C corporation count as a corporation here? It's a lot less hassle and paperwork to have an LLC.
- endtime 16y agoI believe you have to be a C corp...we're an LLC and we've talked about converting before the end of the year specifically for this.
- WildUtah 16y agoLooks like my state has reduced requirements for single-shreholder corporations so I could start out with one of those this year and deal with complications when I add partners. It's just a choice of one day of formalities and pain today for a chance that I will want to sell it in five years.
- jbl 16y agoI heard about this a while back. One thing that I haven't heard any talk about is how this affects early employees who may have had options in their company. It sounds like this could benefit people exercising options. At least, I don't recall reading anything that would preclude these benefits from being applied to option purchases. Does anyone have any insight into this?
- ojbyrne 16y ago"The investor must hold the stock for more than five years" and you must realize the gain before Jan 1, 2011. How does that encourage new investment?
- jbl 16y agoMy reading is that one needs only to purchase the stock before Jan 1, 2011 and then hold it for at least five years. Gains from sale of the stock after that would then be taxed according to this new bill.
- ojbyrne 16y agoAh, I guess it could be read that way: "which includes a temporary exclusion for 100% of the gain recognized by non-corporate investors from the sale of qualified small business stock (“QSBS”) acquired after September 27, 2010 and before January 1, 2011" so the dates apply to "acquired" rather than "recognized." It's pretty ambiguously worded.
- shasta 16y agoI find it almost impossible to read the sentence your way because you'd have to split the phrase "acquired after September..."
- rdl 16y agoThe stock must be acquired between 27 SEP 2010 and 1 JAN 2011. You then hold it for at least 5 years, and subject to the other provisions, it's exempt from federal tax (especially AMT!) when exercised. So, this is a bet on LT capital gains rates circa 2016+. But, a bet that doesn't particularly cost anything, assuming you were going to start the business in the next 3 months anyway.
- lzw 16y agoA very obscure, complicated and short term bill that lets democrat congressmen go back to their districts and run political advertisements that claim they "passed legislation to help america's small businesses", etc. Minimal effect, and on top of it, it is overwhelmed by bills already signed that do significant damage to the economy. For instance, the bill that massively increases the size of government, putting a permanent burden in taxation or inflation on the economy that Obama claims will "Stimulate" it. Making things more expensive and preventing businesses from expanding is not stimulative. Adding more workers to the government payroll is a drain.
- deleted 16y ago[deleted]
- roc 16y ago> "For instance, the bill that massively increases the size of government, putting a permanent burden in taxation or inflation on the economy that Obama claims will "Stimulate" it." Which bill is it that massively increases the size of government?
- harold 16y agoHealthcare? Without debating the merits of the bill, there's no doubt that it represents a huge increase in government bureaucracy.
- roc 16y agoWhat's "huge"? Similarly, what's the benefit of considering "expansion" of government bureaucracy without the context of its budget impact? i.e. Is it meaningful to loathe an increase in the size of government if the effort will reduce the net cost of government? e.g. Suppose we could hire a thousand accounts at a hundred thousand dollars a year to go over the defense budget with a fine-toothed comb. If the effect of adding these accountants was a cost reduction of several billion dollars per year, have we expanded government? Looking at one side of the equation it's trivial to see that we have. But looking at the whole equation, in context, it's just as trivial to see that we haven't; not in any practical, useful sense. So pardon me if I'm deeply skeptical of people arguing about only one side of the equation and with subjective measurements to boot.
- rdl 16y agoThis will help founders as much as it helps angel investors. Assuming you're building a business which is likely to exit at $50mm or less (i.e. most consumer internet companies), the biggest hardship is holding on for 5 years, which could be a couple years after M&A exit. This also encourages founders to bring early employees into equity ownership by purchasing founders stock, vs. options, so those employees can get this favorable treatment. (generally, buying your stock with a right of repurchase ends up being a win because it converts ST to LT capital gains, anyway). i.e. on day 0, the company is worth $10k, because the founder puts in $8k of his own money, and the first 4 employees buy their grants for $500 each.
- bugsy 16y agoA three month window that started last month? Seems like this bill was custom crafted for some specific person that has already made his move. It seems very unlikely that many investors hearing about this bill today will be able to change their strategy in such a short time period, it would only affect deals where they have the agreement made and paperwork and financing all ready to go with just the final signatures remaining. Therefore it is not a bill to encourage investment. It is a bill to help out some specific person.
- addoway 16y agoThe exclusion won't apply in this case, because as some indicated below, LLC's are not corporations and most angels invest alone or as a group under a LLC. After some thought, I just don't see this bill creating any additional investments outside of those that were already going to happen.
- Towle_ 16y agoBetter idea: eliminate the capital gains tax entirely, forever and ever.