Baker Tax Blog

Congress just passed, and President Trump signed, the One Big Beautiful Bill Act (OBBBA)—a sweeping package aimed at boosting American innovation and capital formation. Buried in the bill is Section 70431, which dramatically expands the Qualified Small Business Stock...

You have a brilliant business idea. And you can see yourself as a millionaire. But sadly, you’re frozen by the very first decision you have to make: Do you form the company as an S corp, C corp, or LLC? Today’s your lucky day. I’ll make it easy for you. If you plan on...

How do you pay $0 in federal tax on a gain of up to $10M or even more?  By selling qualified small business stock (QSBS) that you’ve held for more than 5 years. What is even more amazing, is that the government has left it up to the taxpayer to self-report whether the...

There has been much action in Washington D.C. with the new administration.  One of the talking points that is still in process is the “One, Big Beautiful Bill” that addresses tax reform.  Sunset Provisions Under the Tax Cuts and Jobs Act (TCJA) enacted during the...

Flashback to 2015. You were so excited when you started your company. You handed out stock options right away to your new employees and shared your expectation that the company would sell in a few years for a big pile of cash. Now it's 2025 however, and you're still...

Have you noticed that Carta won't let your optionholders exercise unless you have a current tax code Section 409A valuation (which Carta allows to be board determined as a stop gap if the company is in the process of a financing or some other material event which...

I’ve always thought FF stock was pretty creative.  And with the secondary purchase plus “magical” exchange structure losing favor, perhaps it’s time to give FF stock another look.  What is FF stock? Founders start a company. They grow it successfully for several years...

Venture capital and private equity fund sponsors frequently ask “how much money do I actually have to contribute to a partnership as the general partner (or “GP”)?” Unfortunately, the answer is that old tax lawyer chestnut: “It’s not entirely clear, and largely...

Pretend you have a preferred equity investment in a company, entitling you to a 2x return before common holders participate in deal or liquidation proceeds. A buyout term sheet arrives, and while the valuation would only get you a 1.8x return, that’s more than enough,...

The Active Business Test Here’s a summary of how the qualified small business stock (QSBS) rules limit the types and amounts of passive assets a corporation can hold while maintaining QSBS eligibility. 1. General Rule The Active Business Test restricts how much of the...

Updated August 20, 2024 Certain recent changes to tax code Section 174 may negatively affect companies that have research and development (R&D) expenses. Here’s the basic problem: If in 2023 you spent $1M to make $1.2M then you have $200K of profit.  If we lived...

Let's say you have some intellectual property (IP) that you'd like to give to a corporation in exchange for shares of its common stock.  The IP and stock are both worth $10,000 and you have tax basis in the IP of $800. Normally such an exchange would trigger $9,200 of...