Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.

By Alyssa Royse

I was having breakfast with some friends a few weeks ago and – I hate to admit this – we were talking about startups and fundraising. (Note to self, “get a life.”) He mentioned to me that they were trying to take advantage of the tax-breaks for angel investors in the Small Business Recovery Act that was recently passed by the Obama administration.

“No capital gains tax on money invested through the end of the year.”

Excuse me? Say what? I hadn’t heard about that. And since I don’t live under a rock, I assume that at least a few of you haven’t either. So add this to your pitch deck, pronto. (Slide 5, right after the hockey stick and before the slide in which you show yourself in the upper right hand corner with no competition.)

“I will make you a fortune, and you will pay no capital gains if you invest NOW.”

Get busy, call all those soft-circled investors. Here’s what you tell them.  From the Whitehouse blog:

Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President – elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.  

The fine print:

  • This is for angels, not institutional investors.
  • This is for investment in new, privately held companies.
  • Must be a C Corp (not LLCs or S Corps – but you change to a C Corp, which many LLCs do anyway.)
  • Company must have assets of less than $50M
  • Investor must purchase stock from / as a direct investment in the company, not a broker, gift etc…
  • Investor must hold the stock for a minimum of 5 years.

If those conditions are met, then there will be NO CAPITAL GAINS on the investment. If you do indeed have the next Google, like it says in your slide deck, then your investors will be pretty psyched.

But wait, that’s not all, there’s more.  If you act now, you can also get  a temporary increase in the amount that you can deduct from your taxes for startup expenses.  Again, directly from the Whitehouse blog:

An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
 
But wait, this limited time offer can get a little sweeter. According to webnewser, you can also benefit from:
 
Deduction for health insurance costs in computing self-employment taxes in 2010. If you are a member of a LLC, a freelancer who fills out a Schedule C for your tax return, or an employee of an S-Corporation who owns more than 2% of the company’s stock, you can claim the insurance you buy for yourself and your family on your tax return.  (LLC and S-Corporations must pay for or reimburse the premiums in order for the individual to qualify for the deduction.)

Removal of cellular telephones and similar telecommunications equipment from listed property. A listed property is something you buy for both for business and personal use, like your car or your camera.  It’s not considered a business expense unless you have a paper trail to prove that you use it for work at least 50% of the time.   Now’s the time to upgrade your smartphone.

Now, get out there and raise some money. You have 7 weeks to seduce investors, but it’s totally worth it. Sometimes they just need a little risk reduction, and the rewards here are sweet.

Even if you have to change to a C Corp, that might be a change worth hoping for, and that you can believe in.

* And please, you know I’m not a financial adviser, right? Please check with people who REALLY know what they’re talking about. Okay?
___________
Alyssa Royse, at one time, had an irrational love  (verging on stalker-like crush)  of president Obama. She no longer does, at all, but this tiny bit of goodness made her think that maybe he’s sneaking in the good stuff without making a big fuss about it, like those moms who bake spinach into the brownies and don’t tell their kids that they’re eating veggies.

Like what you're reading? Subscribe to GeekWire's free newsletters to catch every headline

Job Listings on GeekWork

Find more jobs on GeekWork. Employers, post a job here.