Understanding and reading tax code can be exhausting. It’s usually written in language that may only be appreciated by lawyers and accountants, and can be as long as a fictional novel.
Simply put: Tax code is a bit convoluted.
But there is good news headed your way if you’re an investor or an entrepreneur.
Congress recently passed the PATH Act, which was a trillion dollar omnibus bill that gives taxpayers a so-called bill of rights and an altered line of tax code (Sec. 1202).
The act does not necessarily create a litany of new tax laws or provisions under the current tax code, rather it extends temporary arrangements and makes them permanent to ensure that entrepreneurs aren’t saddled with high and unnecessary tax bills.
One portion of the PATH Act that’s likely to get the attention of investors is a section regarding investors and entrepreneurs.
Those putting money into a corporation with financial resources that do not surpass $75 million may now receive a 100 percent tax break on their investment gain so long as the investor or entrepreneur doesn’t repurchase outstanding stock.
A complete and full tax break on an initial investment sounds to be a fairly good deal. But, of course, there are rules to follow. The government isn’t in the business of passing out free money unless there is to be a return on investment.
Investors and entrepreneurs that take advantage of this provision have to place their investments into companies that have a Qualified Small Business Stock (QSBS) documents and keep that status. The investment made must also be held for at least five years.
This new permanent extension of an already existing tax code provision may potentially save investors millions of dollars in taxes.
Of course, that depends on the amount of the investment and if the individual participating in the financial creation of the company stays in for five years.
But this creates savings and may allow for more investors to inject more money into more small businesses.
New businesses that are five years old or younger create the majority of jobs in the private sector, which is an astonishing statistic. It shows just how important investment is in new business opportunities and how entrepreneurs really do provide many of the jobs in America.
With help from the government to make the road a little easier for job creation within the private sector for newly established companies, we may continue down the road of creating good jobs for our economy.
As more learn about this line of tax code and what it means for investors, it is important to remember that these ideas and provisions were likely submitted to Congress by business owners, investors, venture capitalist, and others with interest in growing new business in this country in an effort to create a better pathway for investment into fresh and innovative business.
This also shows that our government is committed to altering our tax code so that it works for more Americans and that they are engaged towards true and real job creation for everyday Americans.
Rod Turner
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital service for mature startups and mid sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves and eASIC.
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