Current News | Stock Opportunities Wasted
Corporate Share Capital, or stock, is one of the most written about things in the Internal Revenue Code and regulations. Everything seems to be about stock. Yet many tax advisors miss massive opportunities to save tax on stock transactions every day.
Recently we were faced with a client who had a large gain on a C Corporation stock that most advisors would have simply put on Sch. D and had the client pay the tax. But this stock was peculiar, and it raised something from years of education and training in us that made us look deeper. Turns out our "hunch" was right - it was Section 1202 stock that qualified for a 50% federal (and thus also Colorado state) exclusion on taxability. After it was all said and done, our client saved approximately $120,000, just by picking the right advisor who was looking for the right facts.
Section 1202 is a code provision that is so rarely raised by advisors, when speaking with corporate counsel for a large San Fransisco startup that was recently purchased by private equity, no one had advised any of the founders that they might be eligible for its benefits. Although we tried to get the word out through Counsel, we are sure that a number of the Founders probably still didn't get Section 1202 treatment on their return. Another stock opportunity wasted.
And what of Section 1244? Remember how capital losses are limited to capital gains or 3,000 a year? Section 1244 provides that these capital losses can be treated as ordinary losses AND can be taken up to $100,000 per year for a married couple filing a joint return. Most business owners we know would qualify for Section 1244 if they sold or dissolved their company at a loss. Not a good situation, but turning those lemons into lemonade can be done - by using Section 1244 to increase the amount of loss that can be used to offset other ordinary rate income.
Many people see tax return preparation as a commodity cost - like having your brakes done on your car, or shopping for a new television. Smart people who make and like to keep their money see their tax advisor as a value-add proposition; an opportunity for the fee to be less, sometimes much less, than the tax savings. Is your tax advisor raising these opportunities to you? If not, are you viewing this relationship correctly - or are you shopping for the best price and forgoing huge opportunities to save tax?