Investors and owners of startups are always looking to maximize the potential value of a business and realize that value at some point in the future. Taxation is an important driver of the value of a business. While taxation should not be the only consideration in investment decisions, it should play a role in an investors’ due diligence before making an investment.
Over the years, Congress has provided for a variety of incentives to encourage taxpayers to invest in small businesses. Recently, via changes to Section 1202 of the Internal Revenue Code (“IRC”), Congress has made these incentives more generous. In fact, one of these incentives is so generous that it calls for a complete exemption from federal income tax. This incentive is an excellent way for an investor to jump into or continue his or her investment in the lucrative startup field. It is also a great way for a startup company to attract investment from outside investors.
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