By Kelly A. Berardi, JD
Gray, Gray & Gray, LLP

If you are planning to sell (or have recently sold) stock in a small business C corporation, you may be able to exclude a portion of any gain realized from your taxable income.

Provided the stock was for a “qualified small business,” you may be able to exclude a specified percentage of the gain you realize (IRC Section 1202). Or you may even be able to avoid or defer recognition of the entire gain if you reinvest in another qualified small business stock within 60 days (IRC Section 1045).

The IRS defines a “qualified small business” as a domestic C corporation whose gross assets do not exceed $50 million. It must also be an “active” business, not an investment company or holding company. For example, the business will fail the “qualified small business” test if more than 10% of its net assets consist of stocks or securities in other companies (not including subsidiaries.)

Taxation issues are complex and no decision should be made until you have discussed the situation with a qualified tax advisor. To determine whether you qualify for the exclusion or for more information, please contact our Tax Department at (781) 407-0300.