Don't forget QSBS Sec. 1244. Even fewer folks know that their losses (if an early investor and the company fails) can be deducted against ordinary income.
• Investment is directly issued to an individual or partnership
• Company has $1 million or less in aggregate capital (i.e., contributed capital and paid-in surplus, including the capital being contributed at issuance of the stock)
• 50% of gross receipts must be from income other than royalties, rents, dividends, interest, annuities, and gains from sales and trades of stocks or securities during the past five tax years before the loss.
• Sec. 1244 rules allow the taxpayer to take the loss as an ordinary loss instead of a capital loss, up to $50,000 or $100,000 if married filing jointly.
Example 2: An investor purchases $5,000 of equity crowdfunding stock that can be treated as an SBC. Just over one year later, the company sells to another company, and the investors are bought out. The value of the business has declined, and the investor is given only $1,000 for all of the stock, creating a $4,000 loss. Since the stock was SBC, the entire $4,000 loss would be deductible as an ordinary loss. If the stock were not SBC, only $3,000 would be currently deductible (unless the investor had other capital gains to offset), with the remaining loss carried over to future years.
I completely agree with this opinion: "50% of gross receipts must be from income other than royalties, rents, dividends, interest, annuities, and gains from sales and trades of stocks or securities during the past five tax years before the loss."
Don't forget QSBS Sec. 1244. Even fewer folks know that their losses (if an early investor and the company fails) can be deducted against ordinary income.
Great point Joe!
Here's a good article that explains this section: https://www.thetaxadviser.com/issues/2018/jan/introducing-us-equity-crowdfunding.html
Sec. 1244: take ordinary loss if:
• Investment is directly issued to an individual or partnership
• Company has $1 million or less in aggregate capital (i.e., contributed capital and paid-in surplus, including the capital being contributed at issuance of the stock)
• 50% of gross receipts must be from income other than royalties, rents, dividends, interest, annuities, and gains from sales and trades of stocks or securities during the past five tax years before the loss.
• Sec. 1244 rules allow the taxpayer to take the loss as an ordinary loss instead of a capital loss, up to $50,000 or $100,000 if married filing jointly.
Example 2: An investor purchases $5,000 of equity crowdfunding stock that can be treated as an SBC. Just over one year later, the company sells to another company, and the investors are bought out. The value of the business has declined, and the investor is given only $1,000 for all of the stock, creating a $4,000 loss. Since the stock was SBC, the entire $4,000 loss would be deductible as an ordinary loss. If the stock were not SBC, only $3,000 would be currently deductible (unless the investor had other capital gains to offset), with the remaining loss carried over to future years.
I'm well familiar with it. I've been lobbying for 5 yrs to get it modernized again. See https://bit.ly/37HcczR and pass it along!
This is good stuff, thank you for sharing!
I completely agree with this opinion: "50% of gross receipts must be from income other than royalties, rents, dividends, interest, annuities, and gains from sales and trades of stocks or securities during the past five tax years before the loss."