Maryanne Hudson at the Angel Capital Association sent us this timely update, which we thought we would just pass along promptly.
“Yesterday, Congress passed the American Taxpayer Relief Act (AKA the bill to eliminate the "fiscal cliff"). This legislation includes a wide variety of tax changes to increase government revenues, approves several "tax extenders," and also delays the deadline for implementing several government budget cuts (the "sequestration") to March 1, 2013. The most mentioned provision of the bill is raising the income tax rates for families with income above $450,000 and individuals above $400,000 to 39.6%.
“The following items in the bill are of interest for many angel investors and ACA members:
- The tax on capital gains will be set at 20% for those above the $450,000/ $4000,000 threshold. It will remain at 15% for all other taxpayers* (but see note below).
- The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class.
- Among the "tax extenders" items is the extension of the 100% exemption on Qualified Small Business Stock (Sec 1202) through December 31, 2013. In addition, this extension is retroactive to investments made in 2012, after the exemption expired at the end of 2011. This extension was a key goal of ACA and is included in Section 324 of the bill. This exemption is for gains in investments held 5 or more years in C Corporations with values of less than $50 million and several other qualifiers. (ACA will work in 2013 to make improvements to some of the qualifiers for 1202.)
“ACA recommends a full review of the legislation with your tax counsel to understand these provisions and others that may or may not affect individual angels. It should also be noted that previous legislation will impact the capital gains rates for some investors by an additional 5%. Beginning January 1, 2013, the Affordable Healthcare Act imposes a 3.8% tax on some capital gains by income earners above $250,000; and the Pease amendment, which limits the deductions itemizers can claim, effectively a 1.2% tax.
“We will keep you updated as we learn more about this bill and important issues for ACA members. Best wishes for a successful 2013.”