Bill eases qualified small business stock tax rules for early investors

What does this do?

This bill changes the tax rules for people who hold stock in qualifying small businesses. Instead of waiting 5 years to exclude all gains from taxes, investors can now exclude 50% after 3 years, 75% after 4 years, and 100% after 5 years. The bill also lets investors count time spent holding a convertible loan before it became stock, and it extends these rules to S corporations for the first time.

Who does it affect?

Individual investors in small startups and small businesses are most directly affected, including angel investors and everyday people who buy qualifying small business stock. Small businesses themselves, especially S corporations, are also affected because the new rules may change how easy it is for them to attract investors.

Why does it matter?

Lowering the holding period and adding a sliding scale changes the tax cost of investing in small companies at different points in time. Including S corporations means a type of business that was previously left out now falls under these rules.

Where does it stand?