Taxpayers may run into limitations under Section 1202, but thoughtful tax planning can minimize the impact of the limitations and maximize the tax benefits for selling shareholders. The initial structuring is important, which is why our Section 1202 specialists will talk through a variety of topics to consider when starting or buying a company that’s intended to be eligible for QSBS gain exclusion on exit.If Section 1202 is part of the investment strategy, you’ll need to form the business in the correct way. Newly formed companies have different planning opportunities to maximize the gain exclusion as well as some specific rules in Section 1202 to consider. If you intend to acquire a current business as part of your formation, engaging in proactive planning at the outset can help to ensure Section 1202 requirements are met from the beginning. Finally, the method of issuing the shares can be important to starting qualification out right. This can include additional considerations if a pass-through entity is a shareholder or if equity-based compensation is intended to qualify for Section 1202.
Learning objectives:
- Identify key planning concepts for startup companies that have a goal of qualifying for Section 1202 on exit.
- Identify key considerations when it comes to acquiring an existing company and having QSBS.
- Understand best practices for issuing equity and employee equity incentives for stock to be eligible for Section 1202.
