You now have a new tax incentive to invest in fledgling corporations, thanks to the new economic stimulus law. You might even want to plow some money into your own company.
Strategy: Buy new “qualified small business stock” (QSBS). When you sell the stock, you can potentially exclude up to 75% of the gain from tax under the new law. Alternatively, you may roll over the sale proceeds tax-free into stock of the same company or another qualified small business.
Also, you may be able to combine the enhanced tax exclusion with the rollover for a future tax bonanza (see box).
Let’s quickly review both tax breaks.
Tax break No. 1: Under the rules in effect before the new law, you can exclude up to 50% of the gain from the sale of QSBS from federal income tax if you meet certain requirements. For starters, you must hold the stock for at least five years. Also, the stock must have been issued directly to you or given to y...(register to read more)