It’s no secret that the tech industry gets some very large tax breaks, especially for startups and small businesses. However, some feel that the current 100% write off is too generous, and needs to be rolled back in order to fund other parts of the upcoming $3.5 trillion spending bill. As a way to balance things out, Democrats have proposed limiting this tax write off, returning it to the 50% write off that was written into law back in 1993.
Eligibility and Past Exemptions
Different exemptions have come into law at different points in history. Here is a brief recap of how this tax break has worked in the past leading up to the present:
- Stock issued after Aug. 10, 1993 – 50%
- Assets received after Feb. 17, 2009 – 75%
- Stock issued Sept. 27, 2010 or afterwards – 100%
Eligibility for these tax breaks depends on a couple of factors. Firstly, the corporation seeking the tax break must have $50 million in gross assets or less at the time of issuing qualified small business stock. Secondly, the share holders must then hold onto their investments for 5 years or more.
Managing the Tech Industry Tax Breaks
The tax breaks have been a gift to both tech companies and to their investors. However, a 100% write off may be excessive. While investors may not be happy to begin getting a tax bill when they sell their stock, others have said that the tax breaks don’t fuel innovation as much as one would think.
In fact, Bryan Springmeyer of Springmeyer Law in Berkeley, California stated that out of the thousands of entrepreneurs he’s worked with, not one of them started their company because of the current tax provision.
It should also be mentioned that cutting the tax break from 100% back down to 50% is expected to save $5.7 billion over the course of the next 10 years. This is a substantial amount of savings, but the Columbia Law Review stated that the exemption may be worth much more in the long run.
Ultimately whether or not this proposed tax break roll back goes into affect will have a greater impact on investors in the tech industry rather than the companies themselves. Like many pieces of legislation, the supposed benefits and drawbacks are theoretical until it goes into law, and the actual effects can be seen first hand.
Image by Gerd Altmann