As the season for year-end tax planning approaches, the possibility of tax reform means it’s essential for individuals and business owners to consider a wide variety of tax strategies to best position themselves for the future. The plan, which aims to simplify the tax code, lower the business tax rate, and grow the economy, could significantly impact taxpayers if adopted. That said, sound tax planning—especially in the face of such unpredictability—is essential to effective wealth management for those who work, own, or do business in the technology industry.

Stock Option Planning

If your compensation package includes stock options, paying close attention to how and when you exercise your options and sell stocks can have a substantial impact on your personal tax liability. Here are a few ways you can control the tax impact:

• Exercise incentive stock options up to the alternative minimum tax (AMT) crossover
• Sell publicly traded shares at a loss
• Exercise nonqualified stock options
• File an 83(b) election and exercise early

Qualified Small Business Stock

If you’re an early investor in a company, you may be eligible to eliminate or defer federal tax—and even state tax, in select cases—on all or a significant portion of your gain upon sale. There are several specific requirements that must be met for a stock to be considered qualified small business stock (QSBS), such as:

• Company is a domestic C corporation
• Stock is issued after August 10, 1993, and acquired by a taxpayer directly from the company for money; property, other than stock; or services, although there are some limited exceptions to this rule
• The corporation has assets equal to or less than $50 million at all times prior to and immediately after issuance of the stock

It’s important to note that certain redemptions can retroactively eliminate QSBS treatment, even if all other requirements are met.

You can eliminate QSBS gain up to the greater of $10 million or 10 times your tax basis. To be eligible to exclude the gain, you must hold the stock for five or more years, while a deferral requires a six-month holding period followed by a reinvestment of the gain in another QSBS.

R&D Tax Credit

More companies than ever are eligible to claim the R&D tax credit, and now that it’s permanent, companies of all sizes and industries can quantify the value of the R&D tax credit in their long-range budgeting and forecasting.

For new and small businesses in particular, the credit is much more accessible. For example, it can be used in the following ways:

• Small businesses can fully offset the alternative minimum tax
• New businesses can offset up to $1.25 million in payroll tax

If your company has historically underutilized the R&D credit, you stand to benefit from reassessing whether you qualify, and if so, implementing it as a tax strategy.

Additional Considerations

Explore other tax considers for 2017 in our complete guide. We cover personal income tax, credits and deductions, wealth management, and some business-related topics. Read the complete guide or print the PDF.

We’re Here to Help

The method you choose for performing a contract is instrumental to its level of success. Tax methods for technology companies are no different, with the potential to capture permanent tax savings often resulting from the method you choose. Please contact Scott Peterson, Nathan Wright, or Jerry Yu for more information.