Startup Funding Espresso – Tax Issues With Secondaries

Tax Issues With Secondaries Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. There are tax issues associated with a secondary sale. Here's a list of issues to consider: Gains on secondary sales are taxed based on the holding time of the shares. If less than one year, then ordinary income tax rates apply. If longer than one year then the capital gains tax rate applies. If the purchase is made at a premium price, then additional tax issues arise. If made to an employee then the IRS may treat a portion of the gains as compensation and not as capital gains. If made to a third party investor the IRS may also determine a portion of the sale to be compensation and require the company to apply withholding. The identity of the buyer, the type of sale, and the purpose determine the tax treatment where premium pricing is used. Stock purchases only from employees will be deemed as compensation. If the purpose of the sale is for reducing dilution, gaining control, or addressing a company in need then those sales will not be deemed as compensation. Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding. Let's go startup something today. _______________________________________________________ For more episodes from Investor Connect, please visit the site at: http://investorconnect.org Check out our other podcasts here: https://investorconnect.org/ For Investors check out: https://tencapital.group/investor-landing/ For Startups check out: https://tencapital.group/company-landing/ For eGuides check out: https://tencapital.group/education/ For upcoming Events, check out https://tencapital.group/events/ For Feedback please contact [email protected] Please follow, share, and leave a review. Music courtesy of Bensound.