A tax carrot to attract investors

January 27, 2011
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It’s a little thing, but in this environment, little things add up. A tax break for investments in smaller companies was extended until Dec. 31 this year, a benefit that isn’t widely known.

Investors can avoid federal taxes on capital gains if the companies are C corporations and have less than $50 million in assets. Also, the stock must be held for more than five years.

In most cases, service businesses don’t qualify and the investor can’t be a corporation; however, the investor can be a limited partnership, which opens the door to many venture capital firms.

Ice Miller attorney Kristine Danz says a number of angel and institutional investors took advantage of the break last year, and she anticipates more this year. Tech and life sciences companies seemed to benefit most, she says.

Just FYI if you need that extra carrot to bring that investor aboard.


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