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Use IRS Code Section 1202 to sell your multimillion-dollar startup tax-free



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Vincent Aiello
Contributor

Spencer Fane attorney and business owner Vincent Aiello helps businesses solve legal problems to secure revenue flow and reduce business risks.

Whoever said you can’t have your cake and eat it too should have called their accountants and lawyers first.
These professionals often receive inquiries from founders, equity investment firms and venture capitalists looking for ways to save on or avoid capital gains taxes on future business sales. Both lawyers and accountants encourage clients to examine the tax savings offered by setting up a Qualified Small Business (QSB) C-Corporation at the initial business formation stage. Using a QSB can eliminate capital gains tax due on the future business sale if the company is established and stock issued pursuant to Internal Revenue Code Section 1202.
Many startups often simply default to a robotic use of S-Corporations, partnerships, and LLCs, but savvy tech founders should consider the excellent long-term tax savings afforded by IRS Code Section 1202.
This article provides a general overview concerning the major requirements and tax savings provided by forming a startup entity structured to maximize the capital gains tax exclusio …

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