Investing in qualified small business (QSB) C corporation stock offers you the opportunity to diversify your portfolio and enjoy two valuable tax benefits:
The taxable portion of any QSB gain will be subject to the lesser of your ordinary-income rate or 28%, rather than the normal long-term gains rate. Thus, if the 28% rate and the 50% exclusion apply, the effective rate on the QSB gain will be 14% (28% × 50%).
As you might expect, these tax benefits are subject to additional requirements and limits. For example, to qualify as a QSB, a business must be engaged in an active trade or business and must not have assets that exceed $50 million.
Also, be sure to consider the non-tax factors as well, such as your risk tolerance, time horizon and overall investment goals.
Should you wish to discuss the tax ramifications of the possible sale of QSB stock, contact me at meagan@BerdonLLP.com or contact to your Berdon advisor.
Michael Eagan, J.D., LL.M., a Berdon LLP tax manager, has nearly 20 years of experience in the accounting profession with a concentration in the real estate industry including partnerships and international organizations. He works extensively with REITs to minimize corporate taxes and maximize tax benefits.