Strategy 06
Ordinary Loss Treatment, Section 1244
Ordinary loss treatment for losses on qualifying small business stock.
Discuss this strategyWhat it is
Internal Revenue Code §1244 lets an individual or partnership treat a loss on the sale or worthlessness of qualifying small business corporate stock as an ordinary loss rather than a capital loss, up to $50,000 per year ($100,000 on a joint return). To qualify, the stock must be issued for money or property by a domestic small business corporation that meets the §1244(c) capital and gross-receipts tests, and must be held by the original holder.
Who it is for
Founders and early investors in small domestic corporations who want the downside protection of ordinary loss treatment if the venture fails, in addition to the §1202 upside protection if it succeeds.
Related strategies
Three strategies that travel with this one.
Strategy
Qualified Small Business Stock, Section 1202
Qualified small business stock gain exclusion under Internal Revenue Code §1202.
Strategy
Entity Optimization
Structuring business entities (S-corp, C-corp, LLC, partnership) for optimal tax treatment.
Strategy
Equity Tax Timing, Section 83(b) Election
Timing-of-taxation election on restricted property and equity compensation under IRC §83(b).
Next step
See whether this strategy fits your facts and circumstances.
The first call is fact finding only. We tell you whether this strategy belongs in your plan, and what would have to be true for it to apply.
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