With the reduction of the corporate income tax rate from 35 percent to 21 percent and the ability to exclude a significant amount of gain on the sale of Qualified Small Business Stock (“QSBS”), many startups choose to organize as C corporations. Many practitioners believe that gain recognized above the excludible amount is not eligible for regular long-term capital gains and is taxed at a 28 percent tax rate. This is simply not the case and this misinterpretation has cost founders and other investors significant amounts in additional tax. It is important that the tax advisor has a thorough understanding of the QSBS rules including the applicable tax rates for certain gain recognized on the sale of QSBS stock. […]
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