IRC Section 1202 Qualified Small Business Stock Checklist
IRC Section 1202 can provide significant tax savings for owners of qualified small business stock. This checklist will assist in determining if your investment qualifies.
What is the IRC 1202?
IRC 1202 is a tax provision under the Internal Revenue Code that offers tax incentives for investors who purchase stocks in small businesses. To qualify for the IRC 1202 provisions, the stocks must meet certain criteria, and as such, it is advisable for small businesses to have a checklist to ensure they meet these requirements. This checklist is known as the IRC 1202 Small Business Stock Checklist.
Does your investment qualify?
The first thing to check on the IRC 1202 Small Business Stock Checklist is whether the business qualifies as a small business. This is because only small businesses can issue IRC 1202 qualifying stocks. The rules for determining whether a business is small vary depending on the nature of the business, however, in general, the business must have less than $50 million in assets at the time the stock is issued.
The next item on the IRC 1202 Small Business Stock Checklist is to ensure that the stock being issued is common stock. This is because only common stock can qualify as an IRC 1202 stock. Preferred stock or any other type of stock issued by the company will not qualify for this tax provision.
The third item on the checklist is to ensure that the stock being issued is held for more than five years by the investor. This is because the tax incentives under the IRC 1202 provision only apply to stocks held for more than five years. Stocks held for less than five years will not qualify for the tax break.
Another important aspect of the IRC 1202 Small Business Stock Checklist is ensuring that the small business meets the active business requirement. This requirement stipulates that the business must be primarily engaged in the active conduct of a trade or business.
In conclusion, complying with the IRC 1202 Small Business Stock Checklist is important for small businesses looking to take advantage of the tax incentives within this provision. By meeting the criteria outlined in the checklist, small businesses can provide investors with an opportunity to invest in their company and reap the tax benefits that come with owning IRC 1202 qualifying stocks.
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