Kutchins, Robbins & Diamond LTD.

Certified Public Accountants

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Qualified Small Business Stocks: What is the Right Business Entity Type?

Clients often debate the best choice of business entity (C-Corporation, S-Corporation, LLC, etc.) for their operations.  In most cases a flow-through entity is chosen.

 

Consideration should be given to the C-Corporation in light of lower federal tax rates and IRC Section 1202.

 

IRC Section 1202 allows non-corporate taxpayers to exclude 100% of any gain from the sale or exchange of qualified small business stocks (QSBS) held for more than five years and acquired after September 27, 2010 (lessor exclusions if acquired before 9/27/10) up to $10,000,000.

 

Qualified Small Business Stocks (QSBS) is stock that meets the following requirements:

  • The stock was issued after August 10, 1993.
  • Issuer was a domestic C-Corporation with assets under $50 million at all times and agrees to certain IRS reporting requirements.
  • Taxpayer acquired the stock at original issuance in exchange for money or other property (but not as compensation for services).
  • The corporation meets an active business requirement.

Our knowledgeable professionals at KRD can help you make the decision on proper choice of entity and the various tax impacts of each one. Contact us today to learn more. 

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