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.
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.
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.
If you don't earn any income for a few years, you might even be able to add on some free housing while you're at it. That's one I've never done personally.
Of course, it helps to have some savings to draw from during this time. Because most welfare programs just look at annual income now, and not assets. They used to look at assets, but in many states they no longer do.
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.
EDIT to add I understand moderation is a thankless job and thank you for doing it. But I disagree with this particular call.
When we do, we look for a representative phrase from the article itself that can work as an accurate and neutral title. We only ever make up our own titles as a last resort, which is rare, maybe once a week if that. Sticking to the article's language often ends up being truer to the article than its own headline, because those are often not the author's doing. For example the current NYT article does not say "loophole"; only the headline does. The word the article uses is "provision" and it uses it four times. Presumably the headline writer switched "provision" to "loophole" for obvious reasons: it makes the title more provocative and thus more attention-getting. Normally we'd switch it back, but in this case I ran into HN's 80 char limit, so I squeezed "rule" in instead.
When users start objecting to a title in the comments, we usually acknowledge the objection and apply it to the title: https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme.... HN readers have an eagle eye for inaccuracy, so their objections are usually fair. More importantly though, if we don't do it, the thread will increasingly be about how irritating people find the title. By translating their objection into a concrete edit, we ground out that energy. People feel heard, and the thread can go back to discussing the article itself, which is always more interesting.
Never underestimate the passion users feel about titles. It is a force of nature—I call it 'title fever': https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme.... You cannot fight it, only yield: https://news.ycombinator.com/item?id=17496011. When I started this job, I found that perplexing: why care so much about titles? How is this the most important thing? But I've come to understand it better. Titles are the one thing everybody reads, so they're the one thing we all have in common. It sounds trivial, but they're the most public, most shared space the community has, and so carry the strongest charge. Thousands of lasers are focused on them. They're also small enough that it's possible to understand them and to feel like one can get them right—at least in comparison to anything else. The community's passion for correctness, so frustrated in most other places, ends up pouring into this.
This creates a strongly reinforcing loop on HN's front page. The feeling of HN titles being accurate and neutral—"I want it to be bookish" was what PG originally told me—gets compounded and cements into an expectation that things must be that way. If they're not, strong frustration exerts pressure to make it that way. This is what I mean by force of nature. And when readers see that they actually have influence over this place, like when people object to a title and we change it, they bond with it more closely and the loop gets stronger.
It also gets stronger because of the contrast between HN and other places on the internet, which have to play games to get clicks that we are blessed with not having to play: https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme.... The brain works in contrasts, and the contrast between the neutral HN style and most other places is so sharp that it creates an "ow my eyes" effect going one way and an "ahh" feeling of relief going the other. HN being text-based affects that too: no garish images, no flashing lights, no loud videos. The more often people come here, the more such small contrasts get registered—thousands of them. We're all conditioned now to expect HN's front page to be this way. Coming here should feel like walking into a library.
It's an interesting question what all this emotion that people feel about HN titles, the HN frontpage, and HN itself is really related to. It's far too strong to only be about HN, which is merely an internet forum and basically just an entertainment site.
Everyone keeps saying that moderation is a thankless job and I thank you out for it.
But I'd like to take this chance to thank you for the insights that you post. They give me an amazing insight to this teeming mass called humanity and help me see the 'humane' part of it despite everything to the contrary.
I think the point about the headlines being the one thing everyone reads is especially important for everyone to realize, and I wish the people coming up with titles would realize and take seriously the huge responsibility they have, not just for the number of clicks they garner, but also the fact that very often people read that as the summary and internalize it as fact. Every time the writers stretch the truth to get more clicks, they’re doing slight harm to huge numbers of people.
Thanks for keeping this corner of the internet a bit cleaner of that.
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.
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.
Wow, that's... generous.
The original is about a certain police force and was by Winston Churchill
According to the article, professional accountants consider this scheme dubious.
The UK has something similar for small companies the EMI share schemes - all of the employees where I work have these options.
I don’t understand this. You just claim it on the Schedule D. As far as I know, you don’t file any documentation at the time of the tax return, you simply attest that it qualifies.