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Qualified Small-Business Stock rule helps Silicon Valley workers save millions

nytimes.com

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Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#51

Post by dang »

ericd wrote: post #49
dang wrote: post #48

Earlier quoted context omitted.

The problem is systemic. Those tricks work in the short term, forcing everyone to use them. The long term costs are externalities. HN is in a special position, maybe even a unique one. If it were a standalone business we'd have to optimize for traffic, not curiosity. It's only because HN is part of YC that it can be HN.

You’re right, I just hope they feel some shame as they do it. I’d hoped that trying to maintain their brand would have kept NYT from this, but it seems like no one is immune.

I'm sure they hate it. No one is immune. Even science journals have started doing it!

I wonder what it will take for the publishing industry to find a solution. Not long ago, articles about the death of the music industry were a staple of online forums. Eventually we got simple ways to pay for most music at a fair rate. I haven't seen one of those articles in a while.

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#53

Post by [deleted] »

asr wrote: post #12
dang wrote: post #5

Earlier quoted context omitted.

Ok, we've replaced 'loophole' with the name of the thing above.

The New York Times headline uses the word “loophole.” It’s not appropriate to rewrite that headline simply because you don’t like it. If “loophole” were an incorrect choice of words it would not be in the headline. EDIT to add I understand moderation is a thankless job and thank you for doing it. But I disagree with this particular call.

[deleted]

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#54

Post by dang »

ahelwer wrote: post #38
dvduval wrote: post #34

Yoda, why is the need for acceptance of self-rationalization so strong in this the thread?

Complete absence of humanities education ensures software engineers can justify damn near anything to themselves as long as they benefit from it. Very useful trait to have, in a workforce.

As a former grad student in literature I implore you to avoid a boring two-cultures spat.

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#55

Post by betterunix2 »

bradleyjg wrote: post #35
tlb wrote: post #2

It's not a loophole, it's a specific tax break for people cashing out of "small" businesses. ("small" means at the time you joined -- it can have grown huge since.) QSBS can save you a lot, but it can be a lot of work to file too. I ran up about $20k in accountant bills doing it on a complex deal. If you're selling founder or early-employee stock, ask your accountant if QSBS is right for you.

Okay, let's call it a tax expenditure instead. What public interest is this expenditure advancing and how efficiently is it advancing that interest as compared to alternative expenditures?

It incentivizes investments in small businesses, which generally have trouble attracting investors because of the high risk of failure. In general we want people to take risks and start new businesses to maintain a healthy and competitive market. That employees who are paid in stock also benefit is a good thing, because in addition to capital investments a startup also requires talented workers to help get off the ground.

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#56

Post by betterunix2 »

zaroth wrote: post #40
thepangolino wrote: post #28

Earlier quoted context omitted.

For me a loophole is something that requires a certain amount of work to benefit from. Much more than ticking in a box in a standard form.

For what it’s worth, QSBS is just a matter of filling in the dollar amount and writing “Section 1202 exclusion”. To me a loophole is something where you have to perform some sort of otherwise unnecessary accounting procedure in order to qualify. For example, forming an S Corp to funnel contracting income through, solely for the purpose of avoiding the 3.8% payroll surtax.

A classic example of "we didn't intend for people to do that when we wrote the law!" One of the costs of living in a rule-of-law society is that sometimes the law winds up working in unexpected ways.

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#57

Post by SilasX »

Finnucane wrote: post #9
tlb wrote: post #2

It's not a loophole, it's a specific tax break for people cashing out of "small" businesses. ("small" means at the time you joined -- it can have grown huge since.) QSBS can save you a lot, but it can be a lot of work to file too. I ran up about $20k in accountant bills doing it on a complex deal. If you're selling founder or early-employee stock, ask your accountant if QSBS is right for you.

Loophole doesn’t have a strict definition. Almost any deduction could be a loophole. Usually it is referring to anything that helps people with high incomes avoid paying taxes.

It only feels right to call something a loophole, IMHO, if it's clearly out of the scope of the intent of the law.

Not a loophole:

Government passes electric car tax credit to promote electric vehicles -> Entrepreneur starts a successful business selling them due to a relative advantage over conventional vehicles.

Government taxes businesses based on how profitable they are -> Business pays none of the tax because it hasn't made back its initial expenses.

Loophole:

IRS doesn't consider it a kind of compensation when employers provide meals to coal miners, since it's really not feasible to eat at a coal mine any other way, and so exempts employer-provided onsite meals. -> Tech companies in urban areas provide all meals, and employees get all of a day's food, through untaxed onsite meals.

Government allows deduction of business expenses from taxable income. -> Business mysteriously never has taxable income because it blows all profits on "consulting services" from an untaxed non-profit that the owner runs.

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#58

Post by zaroth »

betterunix2 wrote: post #56
zaroth wrote: post #40

Earlier quoted context omitted.

For what it’s worth, QSBS is just a matter of filling in the dollar amount and writing “Section 1202 exclusion”. To me a loophole is something where you have to perform some sort of otherwise unnecessary accounting procedure in order to qualify. For example, forming an S Corp to funnel contracting income through, solely for the purpose of avoiding the 3.8% payroll surtax.

A classic example of "we didn't intend for people to do that when we wrote the law!" One of the costs of living in a rule-of-law society is that sometimes the law winds up working in unexpected ways.

What do you mean? Section 1202 was very explicitly amended as written to stimulate investment in small business.

It is a huge incentive for Series AA and A investment, particularly for smaller early stage investors where it can effectively double the return.

It’s a fantastic policy to help small business raise money and also retain top talent versus the Goliaths.

There is nothing unintentional about Section 1202. The value of the tax break was strengthened during the Bush stimulus, and then extended and eventually made permanent under Obama. It is a nice bit of tax policy with bipartisan support.

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#59

Post by CalChris »

divyahansg wrote: post #52

Does QSBS kick in if the company is valued at has raised < $50M at the time of exercise?

Aggregate gross assets.

https://www.law.cornell.edu/uscode/text/26/1202

(A) the aggregate gross assets of such corporation (or any predecessor thereof) at all times on or after the date of the enactment of the Revenue Reconciliation Act of 1993 and before the issuance did not exceed $50,000,000,

(B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $50,000,000, and

Re: Qualified Small-Business Stock rule helps Silicon Valley workers save millions

#60

Post by ericd »

dang wrote: post #51
ericd wrote: post #49

Earlier quoted context omitted.

You’re right, I just hope they feel some shame as they do it. I’d hoped that trying to maintain their brand would have kept NYT from this, but it seems like no one is immune.

I'm sure they hate it. No one is immune. Even science journals have started doing it! I wonder what it will take for the publishing industry to find a solution. Not long ago, articles about the death of the music industry were a staple of online forums. Eventually we got simple ways to pay for most music at a fair rate. I haven't seen one of those articles in a while.

Yeah, hoping there’s some business model that deemphasizes impressions in favor of engagement. My personal favorite idea is Spotify for news with share of subscription fee given out based on time on site or something less purely click based. Main problem I see there is convincing the big guys to give up some control over their customer base, and convincing them that they’ll make more overall, despite potentially making much less per reader than with their other subscribers. Big problems, to be sure.
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