The limited liability company has somehow become a favorite form of entity for many business ventures in recent years, particularly real estate ownership and management.
But wait a second! A provision in the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 extends the 100% gain exclusion on the sale of small business stock issued between defined dates and prior to January 1, 2012 under Section 1202 of the Internal Revenue Code if (1) it is acquired by individuals, (2) it is original issue stock and (c) it is held for more than five years. There are some other technical requirements beyond the scope of this blog.
Recently in analyzing which form of entity to use for a client in Arizona acquiring a new business out of state, the company’s CPA properly brought up the point that forming a corporation as an alternate to a limited liability company in light of Section 1202 might outweigh non-tax and business considerations. In this situation, it was a close call, but the client chose the favorable tax considerations in selecting a corporation to use in the acquisition.
This unique tax break may cause people to reconsider utilizing a corporation rather than rushing toward the “ever popular” limited liability company when forming a new entity this year.
Sometimes it pays to step back and get a broader perspective.