This week, Carta and a coalition of innovation and entrepreneurship organizations expressed support for the inclusion of H.R. 2767, the Small Business Investment Act, in a broader legislative tax relief and jobs package spearheaded by House Ways and Means Committee Chairman Jason Smith. This provision, which was introduced by Rep. David Kustoff, would expand the impact of qualified small business stock (QSBS).
The QSBS provision has long been a crucial tool in promoting entrepreneurship and encouraging investment in early-stage startups businesses. Qualified businesses are able to issue stock to stakeholders that, when sold, can exclude up to 100% of capital gains from their federal taxes. This provides an incentive to those who choose to invest their personal dollars, time, and talent in a startup. (For more details on rules and exemptions for QSBS, see our blog post.)
Carta believes the United States must provide a tax structure that incentivizes this vital economic engine. The Small Business Investment Act will reform the QSBS regulations to:
Lower the holding period for sales and exchanges of QSBS from five years to three
Allow the inclusion of convertible debt in the 1202(a) holding period
Expand the gain exclusion to include interests in other kinds of corporations beyond C corporations
These proposed changes would vastly expand opportunities for early-stage businesses to secure vital funding.
“QSBS drives capital to the riskiest part of the economy and helps the people who take the risk get more for their efforts,” says Anthony Cimino, Carta’s Head of Policy. “The Small Business Investment Act broadens the impact of QSBS and, in turn, benefits our nation’s startups, small businesses, employees, founders, and investors.”
Read the coalition’s letter of support here.