The IRS is giving Startup Founders Tax Free Money!

Section 1202 allows you to sell a qualified small business corporation (QSBC) on a tax-free basis. Yes, you read that right.

Now, add to this no-tax-on-sale benefit to the 21 percent corporate tax rate from the Tax Cuts and Jobs Act, and you have a significant tax planning opportunity.

Imagine this: You sell your C corporation. The sale produces a $6 million capital gain to you.

Your federal income tax bite on the $6 million of gain is zero. Yes, you are awake. You are reading this correctly. The tax bite is zero.

Internal Revenue Code Section 1202 establishes the rules for the zero tax bite. To get to zero, you need to operate your business as a tax code-defined QSBC.

You may already have a tax code-defined small business corporation, or you may be thinking of starting a new business as a small business corporation. Paying zero taxes on the sale of your business stock is a big incentive.

100 Percent Gain Exclusion Break (Tax-Free Capital Gains)

To qualify for tax-free capital gains, you must acquire your QSBC stock after September 27, 2010.

More Than Five Years

Of course, there’s more than one rule. You must hold your QSBC stock for more than five years to qualify for the tax-free treatment.

Limitations on Excludable Gains