Smooth Moves

Finding Companies That Qualify

If your investment meets all the requirements and you've held it for at least six months, you can roll over the gain from your original investment into another QSBS. Remember, though, that once you sell your first investment, you have only 60 days to move your funds into a new one to defer the taxes.

Of course, the new investment must meet the same requirements to qualify for the special tax treatment. The 60-day window is a very limited time frame in which to react, says John Evans, managing director of Venture Investment Management Co. LLC in Boston, so it's best to know before you actually sell your investment where you're planning your next one.

Spiegelman advises you not to let the tax benefits go to your head. The most important consideration is your investment decision. "It's pointless to defer the gain if you go into an investment where you lose all your money,' he warns.

Evans agrees. "Look carefully at the company you are investing in first. That is your prime consideration for making the investment. You need to be confident that it has great potential."

If Section 1045 appeals to you and you're aware of companies likely to meet the requirements, there are no limits on how big the business you decide to invest in can become or how many times you can roll over your gains.

On the flip side, if your business qualifies as QSBS, it could be time to point that out to others seeking investments. It might land you some cash, too.

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This article was originally published in the March 2001 print edition of Entrepreneur with the headline: Smooth Moves.

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