Inc. Magazine- Secret Angel Investment Tax Credit That Could Save You Millions -Section 1202
The 1202 tax exclusion should make angel investing more attractive than ever before and also provides a major benefit to entrepreneurs. Just make sure you understand the details: Section 1202 Basics 100% tax break for gains made on investments in qualified small business stock (startups or small businesses). Maximum exclusion equals the greater of $10 million or ten times the initial investment (technically the adjusted tax basis). Alternative Minimum Tax does not apply. Companies must be properly incorporated in adherence with Section 1202. Founders, employees, angel investors, fund general partners and taxable limited partners are all eligible to the tax break. Example of Impact on Entrepreneurs A company is acquired for $50 million and the founder owns 20% of the company at exit. The founder would receive $10 million prior to taxes and would have $10 million of gains.