Individual tax update: Reducing the tax on QSBS sales

Tax professionals with clients who have or are about to sell their businesses should become familiar with Sec. 1202, which allows noncorporate investors to exclude up to 50% of the gain realized on the sale of qualified small business stock (QSBS) held for more than five years. In order to be QSBS, such stock must be in a C corporation, originally issued after August 10, 1993 and acquired by the taxpayer at original issue. Unfortunately, for many taxpayers the benefit of the exclusion for Federal purposes is virtually eliminated because of the alternative minimum tax (AMT). However, there are potential benefits not diluted by AMT if one looks to the state tax consequences and the benefit that may be derived.