What Tax Reform in 2017 Means for Angels and Startups

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:

  • Gains on Qualified Small Business Stock (AKA 1202) will continue to be 100% exempted.  (The continuation happened by not being mentioned in the legislation.)
  • The R&D Tax Credit also continues, as does the ability for startups to take up to $250,000 of the credit against their employment taxes.  (This also happened by not being mentioned in the legislation.)
  • It doesn’t include an initial proposal to tax stock options and restricted stock units when they vest instead of when they are exercised.
  • Carried interest can be taxed as long-term capital gains IF they are held for three years or more.  This appears to be a nice compromise that might help some early-stage investors like angels and VCs.

Thanks to all of you for your help in communicating with Members of Congress about these issues and the importance of startups and angel investors to our economy.  We will need your help in the coming years for public policy issues, including working on bills to improve 1202.  (We’ve been told that Congress may be spending a few years on legislation to correct some of the items in tax reform.  Apparently this is what happened the last time there was major tax reform.)

Thanks to ACA policy leaders, particularly Linda Smith, Christopher Mirabile, and Angela Jackson, for their work.  And the biggest thanks go to Chris McCannell, Greg Mesack and their Eris Group colleagues who help ACA punch way above our weight in Washington, DC.