2016 promises to be another very good year to invest in start-ups because of the extension of significant tax breaks for investors who invest in early stage companies. Investors who invest in small businesses can realize exclusions on capital gains if they choose the right type of company. The Section 1202 exclusion of 100% of gains on qualified small business stock has recently been extended, but this time there is no end is in sight for this extension. When enacted, Section 1202 of the Internal Revenue Code provided a 50% exclusion from income of gains on stock of a qualifying small business held by an investor for more than 5 years. In recent years, this exclusion amount has been increased to 75% then to 100% and then returned to 50%; but these higher exclusion rates have only been extended in short intervals. Now, thanks to the Protecting Americans from Tax Hikes Act, the “PATH Act”, signed into law in December of 2015, gains on qualifying small business stock obtained any time after December 31, 2014 and onward are eligible for the 100% exclusion.

Source: IRS Tax Section 1202: Excluding Your Gains on Small Business Investments | VC Experts Blog