Taxes

By: Marianne Hudson, ACA Executive Director

I thought you would be interested in a handy summary of the tax reform bill, the Tax Cut and Jobs Act, which was signed into law by the President just before the Christmas holiday.  It is by Bloomberg Government and was done before some small tweaks by the Senate, but should be pretty close to the final law.

There are three things to know about tax reform that affect angel investors and new companies, most of which ACA supported and promoted on Capitol Hill:

By: Marianne Hudson, ACA Executive Director

The Angel Capital Association joins the National Venture Capital Association, Center for American Entrepreneurship and many others in thanking Congress for dropping a proposed tax on equity compensation of startup employees that would have devastated the way many high growth companies pay their employees.  The proposal was in both House and Senate bills for tax reform.  The experience of watching many organizations form a coalition and explain to House and Senate leaders how the proposal would have damaged an incredibly important part of our economy also showed us how much power we can have in Washington, DC when we work together.

By: Marianne Hudson, ACA Executive Director

On November 2, Congressional Republicans introduced their new tax reform legislation.  It includes many tax cuts and simplifications that are getting considerable media attention.  I am heartened by a focus that is getting much less press – a focus on entrepreneurship and innovation, in recognition of the importance of the formation of new companies on our economic health.  The bill continues some tax policies ACA has fought for and so ACA has provided a message of support for the bill.  Below is a copy of our public statement supporting the bill, H.R. 1.

By: Marianne Hudson, ACA Executive Director

This post originally appeared on Forbes.com

One of the best parts of being an angel investor is supporting companies after you invest.  And now angels have a new support tool in our pockets for portfolio companies – a new federal tax benefit that can add up to $250,000 per year for these young businesses.  This is real money for startups – and better yet, it is totally non-dilutive to angel investor equity!

I learned about the Federal Research and Experimentation Tax Credit and how it will change for qualified startups at a recent meeting of the Angel Capital Association and I think it is important to get this news to as many angels and entrepreneurs as possible, so they can benefit as soon as possible.  Cash is short for angel-backed companies, so finding extra money – especially of this size - is really important.

By: Marianne Hudson, ACA Executive Director

December 18 was a very big day for angel investors.  Not only did the SEC put out a staff report that recommends tweaks to the accredited investor definition, but Congress passed a big tax act that makes permanent the 100% exemption of capital gains.  Here’s what you need to know in connected blog posts:

Tax Benefits - The holiday party starts early with a gift from Congress

The House and Senate passed the PATH Act (Protecting Americans from Tax Hikes) which included the Angel Capital Association’s top tax priority, extension of Section 1202 of the US Tax Code which allows a 100% exclusion of gains on Qualified Small Business Stock has been made permanent. ACA will continue to support reform of this tax exemption, such as reducing the current minimum five year holding period, in future tax reform. ACA commends our champions who have promoted a tax code that rewards innovation and job creation: Senator Ron Wyden (D-OR), Senator Maria Cantwell (D-WA), Congresswoman Lynn Jenkins (R-KS) and Congressman Ron Kind (D-WI).  Thanks also to our government affairs leaders, Chris McCannell and Joel Riethmiller.

By: Ken Kousky, BlueWater Angels and Krista Tuomi, American University

Angel tax credits are a common policy measure aimed at boosting startups. They are relatively simple and cost-effective for states, and can result in high quality job creation. Credits can also be more effective than a capital gains tax reduction in stimulating early stage companies, since investors get the credit up front whether the investment realizes a gain or not.[1]  Currently 27 states have some form of early stage capital tax credit, the mode being 25% of invested capital.[2] 

It appears that the credits do actually spur new investment as opposed to just rewarding existing investors.  In a report by the Minnesota Department of Revenue, 48% of surveyed angels would not have made their investment without a 25% credit and 34% would have invested less. The Minnesota figures are bolstered by a survey of angels, conducted by Tuomi and Boxer in 2014. In this survey, 69% of respondents claimed that the credit influenced them to invest in more firms or invest more money. Some of this private capital may be displaced from alternative investment in the state, but it is likely that much of this would have been otherwise placed in national capital markets.[3]

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