Do You Qualify for the Section 1202 Stock Sale Gain Exclusion?

Take a second to investigate whether you could qualify for a 100% exclusion on the capital gains of the sale of your C corporation stock.

Section 1202 Qualified Small Business Stock

If the company is defined as a “qualified small business” and other certain requirements are met, then the sale could benefit from a potential 100% gain exclusion for tax purposes.

What Requirements Must be Met to be Considered a “Qualified Small Business”?

• Must be a domestic C-Corporation
• Must have less than $50 million in assets at the time the stock was acquired
• The stock must have been issued after August 10, 1993
• The stock must be an original issuance – direct purchase, stock options, incentive plans, etc.
• The stock must have been held for at least five years from the date of the original issuance
• Watch out for disqualified businesses, included professional service and certain other types of businesses

Private or public stock may be eligible as long as all qualifications were met when you purchased the stock.

Exclusion Percentage by Acquisition Date

The Sweet Spot

• Due to the qualifications and requirements, tech start-ups can be a home run for the Section 1202 exclusion
• Distributors, manufacturers, construction, and similar companies also make for potential candidates
• Businesses in qualified fields that issue stock options/rewards

Consideration for Starting a New Business

With the enactment of the Tax Cuts and Jobs Act in December 2017, the corporate tax rate was reduced to 21% from a maximum of 35%. In light of this, the C corporation structure is certainly more tax friendly than before. If you plan to hold the stock for at least five years, you may be able to benefit from this little known gain exclusion for Section 1202 stock.

With proper planning, you can realize significant savings in taxes when you sell your stock. If you believe you could benefit from this opportunity, please reach out to one of our qualified professionals at learnmore@boulaygroup.com or 952.893.9320.

Investment Advisory Services offered through Boulay Financial Advisors, LLC a SEC Registered Investment Advisor. Certain Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Suite 300 Akron Ohio 44333-2431* 1-800-765-5201

Boulay PLLP and Boulay Financial Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc. Prime Global is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc.