Startups in Silicon Valley have enjoyed the potential for wild success since the time when computers were still only displaying green text, and even before the advent of pre-ripped jeans. You and your friends could take your idea and run with it: bring some sharp engineers on board, work 80 hours a week and potentially cash out in a big way. One of the things that made this business model so successful over the years is California’s deduction in capital gains tax for “Qualified Small Business” stock. How big of a deduction? About half off, down to 4.5 percent when startups finally hit pay dirt.
This is no longer the case. The Federal Tax Bureau announced that this tax break for entrepreneurs will no longer apply. Not only that, but a retroactive taxation (with interest) will apply to all company sales since 2008 in the State of California. This new tax code could have a large impact on the start-up model, pushing budding companies (and the jobs they generate) out of California and into states with a lower Capital Gains Tax. To read an Op-Ed about this development in the tax code, click the link below.