[FoRK] so is it for real now?
J. Andrew Rogers
andrew at ceruleansystems.com
Mon Oct 13 20:12:21 PDT 2008
On Oct 13, 2008, at 7:04 PM, Lucas Gonze wrote:
>> In the original policy of yore, you could defer capital gains taxes
>> indefinitely by reinvesting the gains
> You can?
> I have read that a C corp can shuffle gains back and forth between
> entities with different fiscal calendars, though I don't know the
> details. Is that what you're talking about?
Nope, nothing clever like that.
See the Internal Revenue Code, starting at 26 USC 1202, but it is
scattered about in other parts as well. It is something simple you can
do on your 1040 filing.
There are a number of individual tax breaks and tax-free investment
rollovers for investments in qualified small companies. In the best
known case, "qualified" means something like a domestic C corp, active
non-professional business, and something like gross assets less than
$50M (though fair market value of the company may be substantially
higher). Popular for venture investors. As long as you keep rolling
the investment over into qualified companies, it is like one long
capital gains investment transaction -- you only pay capital gains
taxes on what you pull out of the game.
Some states (like California) have tax elections that mirror the
Federal tax law concerning these types of tax deferrals. I am less
familiar with the tax breaks, but I seem to recall that for longer
holding periods (like 5 years?) it also cut the long-term capital
gains rate in half. It has been a long time since I went over this,
and I am not a tax professional.
Unless one is in the business of investing in small companies, it
seems that hardly anyone knows that these types of capital gains
deferrals exist. The rules are pretty liberal and flexible for the
most part as I recall; the venture capital community had their hand in
J. Andrew Rogers
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