3 ms·

Capital gains taxes rise in 2011. That might be a factor that the author should consider.

lowglow 16y ago
Oh that is something I did not know about. Thanks for the tip!
gojomo 16y ago
And there's a special one-time gains-tax-exclusion for small-business investments before the end of this year -- so a good time to reallocate into startups.
- allantyoung 16y ago
  Can you link to this special one-time tax exclusion? It would help tremendously for startup founders to understand this potential incentive. If this one-time exclusion is set to expire, then startup founders will want to consider accelerating their fundraising plans.
  - gojomo 16y ago
    I heard about it via this link, previously posted to HN: http://www.goodwinprocter.com/Publications/Newsletters/Client-Alert/2010/Temporary-Exclusion-for-100-of-Gain-from-Qualified-Small-Business-Stock-Acquired-By-Year-End.aspx?article=1#news_article_top http://www.goodwinprocter.com/Publications/Newsletters/Clien...
- rdl 16y ago
  I really want to see a top tax attorney analyze this law and how it applies to founders and angels for tech companies. Specifically, I think the Small Business Jobs Act of 2010 can be used by founders to buy founder shares at a trivial basis in one or more corporations founded in q4 2010, built into businesses over the following 5+ years (possibly in parallel...maybe you work on one full time every day, and let a few sit idle with minimal involvement until later...). Then, provided the business capitalization is less than 50mm at exit, and your ownership is 10mm or less, you have zero federal capital gains or AMT liability -- I.e. You win at taxes.
  - gojomo 16y ago
    I've been wondering much the same thing; so I asked this question on Quora: http://www.quora.com/What-pitfalls-should-be-avoided-if-investing-in-a-small-startup-before-January-1-2011-to-take-advantage-of-the-special-100-tax-exclusion-of-the-recently-passed-SJBCA http://www.quora.com/What-pitfalls-should-be-avoided-if-inve... IANAL, but it seems any business so formed must be active in some ongoing non-services business. Still, I'm tempted to form a number of small corporations for each of my 'backburner' ideas, make a small investment, then hire occasional contractors to flesh out the ideas through R&D until they (or a closely-related idea) seems ripe -- perhaps years from now. Then, I'd devote myself full-time to it, and my founders' equity appreciation would remain subject to this one-time 2010 gain exclusion.
    - rdl 16y ago
      Yeah, I'm probably doing the same thing :) Question is: should you just do stupid-cheap WY/NV/etc. formations and then redomicile, or do the real $5-10k corps with full paperwork, agreements, etc.? Or would a top-tier firm/lawyer be willing to discount one principal/owner and 10 corps formed on the same day, in exchange for future business when those corps get used more actively, take subsequent investment, etc.?
ShabbyDoo 16y ago
Yes, I was surprised the article did cite this obvious incentive. I wonder why the executives selling their stock are not openly stating this motivation, even if it is not their primary one.
- pyre 16y ago
  They don't want to be the start of a trend of large volumes of people dumping their stock in such a fashion (this would affect stock prices)?

Oh that is something I did not know about. Thanks for the tip!

And there's a special one-time gains-tax-exclusion for small-business investments before the end of this year -- so a good time to reallocate into startups.

allantyoung 16y ago
Can you link to this special one-time tax exclusion? It would help tremendously for startup founders to understand this potential incentive. If this one-time exclusion is set to expire, then startup founders will want to consider accelerating their fundraising plans.
- gojomo 16y ago
  I heard about it via this link, previously posted to HN: http://www.goodwinprocter.com/Publications/Newsletters/Client-Alert/2010/Temporary-Exclusion-for-100-of-Gain-from-Qualified-Small-Business-Stock-Acquired-By-Year-End.aspx?article=1#news_article_top http://www.goodwinprocter.com/Publications/Newsletters/Clien...
rdl 16y ago
I really want to see a top tax attorney analyze this law and how it applies to founders and angels for tech companies. Specifically, I think the Small Business Jobs Act of 2010 can be used by founders to buy founder shares at a trivial basis in one or more corporations founded in q4 2010, built into businesses over the following 5+ years (possibly in parallel...maybe you work on one full time every day, and let a few sit idle with minimal involvement until later...). Then, provided the business capitalization is less than 50mm at exit, and your ownership is 10mm or less, you have zero federal capital gains or AMT liability -- I.e. You win at taxes.
- gojomo 16y ago
  I've been wondering much the same thing; so I asked this question on Quora: http://www.quora.com/What-pitfalls-should-be-avoided-if-investing-in-a-small-startup-before-January-1-2011-to-take-advantage-of-the-special-100-tax-exclusion-of-the-recently-passed-SJBCA http://www.quora.com/What-pitfalls-should-be-avoided-if-inve... IANAL, but it seems any business so formed must be active in some ongoing non-services business. Still, I'm tempted to form a number of small corporations for each of my 'backburner' ideas, make a small investment, then hire occasional contractors to flesh out the ideas through R&D until they (or a closely-related idea) seems ripe -- perhaps years from now. Then, I'd devote myself full-time to it, and my founders' equity appreciation would remain subject to this one-time 2010 gain exclusion.
  - rdl 16y ago
    Yeah, I'm probably doing the same thing :) Question is: should you just do stupid-cheap WY/NV/etc. formations and then redomicile, or do the real $5-10k corps with full paperwork, agreements, etc.? Or would a top-tier firm/lawyer be willing to discount one principal/owner and 10 corps formed on the same day, in exchange for future business when those corps get used more actively, take subsequent investment, etc.?

ShabbyDoo 16y ago

Yes, I was surprised the article did cite this obvious incentive. I wonder why the executives selling their stock are not openly stating this motivation, even if it is not their primary one.

pyre 16y ago
They don't want to be the start of a trend of large volumes of people dumping their stock in such a fashion (this would affect stock prices)?