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TAX TALK: Why Investing in Small-Business Stock May Make More Tax Sense Than Ever

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 25, 2016 1:00:00 PM
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Purchasing stock in certain small businesses has at least two advantages: you can diversify your portfolio and enjoy preferential tax treatment, thanks to a provision of the tax extenders act signed into law this past December (the PATH Act).  

100% exclusion from gain

The PATH Act makes permanent the exclusion of 100% of the gain on the sale or exchange of qualified small business (QSB) stock acquired and held for more than five years. The 100% exclusion is available for QSB stock acquired after September 27, 2010. (Smaller exclusions are available for QSB stock acquired earlier.)

The act also permanently extends the rule that eliminates QSB stock gain as a preference item for alternative minimum tax (AMT) purposes.

What stock qualifies?

It is important to remember that only certain stocks qualify for this exclusion. A QSB is generally a domestic C corporation that has gross assets of no more than $50 million at any time (including when the stock is issued) and uses at least 80% of its assets in an active trade or business.

Many factors to consider

Tax consequences are only one of the many factors to consider before making an investment. Also, keep in mind that the tax benefits discussed here are subject to additional requirements and limits.

If you are interested in adding small-business stock to your portfolio, email me at or contact your Berdon advisor.  

Topics: TAX TALK

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