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Qualified Small-Business Stock rule helps Silicon Valley workers save millions
- tlb 7y agoIt's not a loophole, it's a specific tax break for people cashing out of "small" businesses. ("small" means at the time you joined -- it can have grown huge since.) QSBS can save you a lot, but it can be a lot of work to file too. I ran up about $20k in accountant bills doing it on a complex deal. If you're selling founder or early-employee stock, ask your accountant if QSBS is right for you.
- outericky 7y agoSeriously... not a loophole. Explicit tax rule. Just making it look like people are somehow taking advantage of the system. FUD.
- walshemj 7y agoTo modify an older UK saying "nothing so sanctimonious as a newspaper journalist" The original is about a certain police force and was by Winston Churchill
- dang 7y agoOk, we've replaced 'loophole' with the name of the thing above.
- asr 7y agoThe New York Times headline uses the word “loophole.” It’s not appropriate to rewrite that headline simply because you don’t like it. If “loophole” were an incorrect choice of words it would not be in the headline. EDIT to add I understand moderation is a thankless job and thank you for doing it. But I disagree with this particular call.
- dang 7y agoHN title moderation is more consistent than it may appear. It all follows from the guideline: "Please use the original title, unless it is misleading or linkbait; don't editorialize." (https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html) Submissions should stick to the original title—submitting an article doesn't confer the right to change it to suit one's opinion. But we make exceptions for misleading titles and linkbait. Given how the internet and media work, we often have to change titles for one or both of those reasons. When we do, we look for a representative phrase from the article itself that can work as an accurate and neutral title. We only ever make up our own titles as a last resort, which is rare, maybe once a week if that. Sticking to the article's language often ends up being truer to the article than its own headline, because those are often not the author's doing. For example the current NYT article does not say "loophole"; only the headline does. The word the article uses is "provision" and it uses it four times. Presumably the headline writer switched "provision" to "loophole" for obvious reasons: it makes the title more provocative and thus more attention-getting. Normally we'd switch it back, but in this case I ran into HN's 80 char limit, so I squeezed "rule" in instead. When users start objecting to a title in the comments, we usually acknowledge the objection and apply it to the title: https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix=false&page=0&query=by:dang%20ok%20above https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme.... HN readers have an eagle eye for inaccuracy, so their objections are usually fair. More importantly though, if we don't do it, the thread will increasingly be about how irritating people find the title. By translating their objection into a concrete edit, we ground out that energy. People feel heard, and the thread can go back to discussing the article itself, which is always more interesting. Never underestimate the passion users feel about titles. It is a force of nature—I call it 'title fever': https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix=false&page=0&query=by:dang%20%22title%20fever%22 https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme.... You cannot fight it, only yield: https://news.ycombinator.com/item?id=17496011 https://news.ycombinator.com/item?id=17496011. When I started this job, I found that perplexing: why care so much about titles? How is this the most important thing? But I've come to understand it better. Titles are the one thing everybody reads, so they're the one thing we all have in common. It sounds trivial, but they're the most public, most shared space the community has, and so carry the strongest charge. Thousands of lasers are focused on them. They're also small enough that it's possible to understand them and to feel like one can get them right—at least in comparison to anything else. The community's passion for correctness, so frustrated in most other places, ends up pouring into this. This creates a strongly reinforcing loop on HN's front page. The feeling of HN titles being accurate and neutral—"I want it to be bookish" was what PG originally told me—gets compounded and cements into an expectation that things must be that way. If they're not, strong frustration exerts pressure to make it that way. This is what I mean by force of nature. And when readers see that they actually have influence over this place, like when people object to a title and we change it, they bond with it more closely and the loop gets stronger. It also gets stronger because of the contrast between HN and other places on the internet, which have to play games to get clicks that we are blessed with not having to play: https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix=false&page=0&query=by:dang%20yc%20hn%20valuable https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme.... The brain works in contrasts, and the contrast between the neutral HN style and most other places is so sharp that it creates an "ow my eyes" effect going one way and an "ahh" feeling of relief going the other. HN being text-based affects that too: no garish images, no flashing lights, no loud videos. The more often people come here, the more such small contrasts get registered—thousands of them. We're all conditioned now to expect HN's front page to be this way. Coming here should feel like walking into a library. It's an interesting question what all this emotion that people feel about HN titles, the HN frontpage, and HN itself is really related to. It's far too strong to only be about HN, which is merely an internet forum and basically just an entertainment site.
- Finnucane 7y agoLoophole doesn’t have a strict definition. Almost any deduction could be a loophole. Usually it is referring to anything that helps people with high incomes avoid paying taxes.
- kaycebasques 7y agoThe definition is very straightforward. It’s a loophole when others do it, especially those I don’t like, but it’s a tax break when I do it.
- Finnucane 7y agoTrue, and if poor people could hire lobbyists and tax attorneys, they’d get more loopholes too.
- zaroth 7y agoProgressive tax rates, the doubled standard deduction, child tax credit, EITC, and Medicaid expansion are all pretty sweet “loopholes” for those on the lower end of the AGI spectrum.
- thepangolino 7y agoFor me a loophole is something that requires a certain amount of work to benefit from. Much more than ticking in a box in a standard form.
- zaroth 7y agoFor what it’s worth, QSBS is just a matter of filling in the dollar amount and writing “Section 1202 exclusion”. To me a loophole is something where you have to perform some sort of otherwise unnecessary accounting procedure in order to qualify. For example, forming an S Corp to funnel contracting income through, solely for the purpose of avoiding the 3.8% payroll surtax.
- ForHackernews 7y agoIt does seem like taking the piss for a multimillion dollar startup to qualify as a "small business". Just because you're staying within the letter of the law doesn't mean it's not a loophole -- arguably that's exactly what a loophole is. According to the article, professional accountants consider this scheme dubious.
- walshemj 7y agoYou know startups start you know start small Apples initial seed capital was a few thousands I believe. The UK has something similar for small companies the EMI share schemes - all of the employees where I work have these options.
- zaroth 7y ago> QSBS can save you a lot, but it can be a lot of work to file too. I ran up about $20k in accountant bills doing it on a complex deal. I don’t understand this. You just claim it on the Schedule D. As far as I know, you don’t file any documentation at the time of the tax return, you simply attest that it qualifies.
- bradleyjg 7y agoOkay, let's call it a tax expenditure instead. What public interest is this expenditure advancing and how efficiently is it advancing that interest as compared to alternative expenditures?
- betterunix2 7y agoIt incentivizes investments in small businesses, which generally have trouble attracting investors because of the high risk of failure. In general we want people to take risks and start new businesses to maintain a healthy and competitive market. That employees who are paid in stock also benefit is a good thing, because in addition to capital investments a startup also requires talented workers to help get off the ground.
- toomuchtodo 7y agoHow early of an employee would you need to be?
- kreetx 7y agoWhen you join the company needs to be valued less than $50 million (by the article), the price of the actual stock doesn't matter.
- toomuchtodo 7y agoThank you, this is very helpful for me.
- jandrese 7y agoSo like Eric Schmidt could use this if he cashed out his Google options?
- zaroth 7y agoProbably. But it’s limited to the first $10mm of gains.
- CalChris 7y ago$10M per year. (1) In generalIf the taxpayer has eligible gain for the taxable year from 1 or more dispositions of stock issued by any corporation, the aggregate amount of such gain from dispositions of stock issued by such corporation which may be taken into account under subsection (a) for the taxable year shall not exceed the greater of— (A) $10,000,000 reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years and attributable to dispositions of stock issued by such corporation, or (B) 10 times the aggregate adjusted bases of qualified small business stock issued by such corporation and disposed of by the taxpayer during the taxable year. https://www.law.cornell.edu/uscode/text/26/1202 https://www.law.cornell.edu/uscode/text/26/1202
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- microdrum 7y agoClassic New York Times. Explicit tax law = "loophole" if the NYT doesn't like the people who follow that particular explicit tax law.
- ForHackernews 7y agoSpecial giveaways to me are legitimate tax relief; giveaways to you are shady loopholes.
- umeshunni 7y agoYup. This is some serious clickbait. Flagging.
- liminal 7y agoWith stock options would the 5 year clock start only when the options are exercised, when they were granted, or when they vested?
- akavi 7y agoBoth the 50 M$ valuation rule and the 5 year clock start time apply when the stock is exercised. Note, however, that the "valuation" from a QSBS perspective is usually significantly less than the PR valuation you hear when a startup raises a round (which assumes all shares are valued at the new preferred share price)
- jameslevy 7y agoThe five year clock starts when you early exercise and file an 83b with a vesting schedule, or would the clock start only once the stock has vested? I think it's the former, when you early exercise, but the language seems a bit confusing.
- akavi 7y agoThe former, but as the sibling comment says, if you're in this situation a your own CPA is a very worthwhile investment.
- techslave 7y agoabout a year ago i received 2 opinions from 2 very well regarded CPAs that the 5 year clock starts at exercise, including early exercise. however, as this is an anonymous forum, filled with scoundrels, tax and legal “advice” should always be ignored with prejudice. you would do well to ask an accountant or tax advisor on your own.
- CalChris 7y agoFor QSBS, you have to own the stock. Granted means you can vest the options over time. Vested means you can exercise the options. Exercised means you own the stock.
- deleted 7y ago[deleted]
- abuehrle 7y agoDoes anyone have insight into whether QSBS could go away in the foreseeable future? We're not interested in selling our small SaaS business now, but will in the next 2-10 years. It would be a shame to miss out on this.
- CalChris 7y agoQSBS was created in 1993 but it wasn't useful until 2010. Those changes were made permanent in 2015. Anything can change but for the near term it probably won't.
- dvduval 7y agoYoda, why is the need for acceptance of self-rationalization so strong in this the thread?
- ahelwer 7y agoComplete absence of humanities education ensures software engineers can justify damn near anything to themselves as long as they benefit from it. Very useful trait to have, in a workforce.
- walshemj 7y agoSo steeples fingers exactly why do you think its wrong to reward risk - there are good economic reasons for taxing capital gains differently to income and its due to the increased risk. Or do you have a political argument against this? don't forget this is not just the Zuckerberg's of this world its ordinary developers like you and me
- steve76 7y agoDEAR FOOLISH MARXISTS: YOU MOVED FAR FAR AWAY ONLY AFTER YOU SICCED COPS ON ME AND BURNT MY BUSINESS TO THE GROUND. REPEATEDLY YOU BLACK LISTED ME AND STOLE ALL MY IDEAS ALL BECAUSE I WONT JOIN IN YOUR FOOLISH DANCE OF DEATH YOUR ADOLESCENT ORGY YOUR KIDNEY MY PROPERTY PREPARE TO CURE THE DISEASE THE SPOTLIGHT YOURS THE MONEY YOURS THE HAND FACE AND HEART OF EVIL YOURS YOURS YOURS YOURS YOU TOOK TARP YOU TOOK QE 1 2 3 PLUS ONE YOUR HEART MINE YOUR BRAIN MINE SUFFER SUFFER SUFFER FOREVER YOU WONT DIE CRY YOUR TEARS TO THE GODLESS CHINESE HEAR THEM LAUGH AS YOU SWEAT AND SWEAT AND SWEAT I WILL NOT WASTE ONE DROP OF BLOOD FROM MY PRECIOUS HUMANS OF THE PARADISE OF PLANET EARTH.
- divyahansg 7y agoDoes QSBS kick in if the company is valued at < $50M or has raised < $50M at the time of exercise?
- CalChris 7y agoAggregate gross assets. https://www.law.cornell.edu/uscode/text/26/1202 https://www.law.cornell.edu/uscode/text/26/1202 (A) the aggregate gross assets of such corporation (or any predecessor thereof) at all times on or after the date of the enactment of the Revenue Reconciliation Act of 1993 and before the issuance did not exceed $50,000,000, (B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $50,000,000, and