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Why investing in small-business stock may make more tax sense than ever

January 19, 2016

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By purchasing stock in certain small businesses, you can not only diversify your portfolio but also enjoy preferential tax treatment. And under a provision of the tax extenders act signed into law this past December (the PATH Act), such stock is now even more attractive from a tax perspective.

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?

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

Of course tax consequences are only one of the many factors that should be considered before making an investment. Also, keep in mind that the tax benefits discussed here are subject to additional requirements and limits. Consult us for more details.

© 2016

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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