With more than 90% of Seed and Series A startups failing to provide an exit for investors, investing money in an early-stage business is not for the faint of heart. To help entice more investors to risk their capital in early-stage ventures, the U.S. provides special tax relief for startup investors.

While startup investments can qualify for long-term capital gains, certain investments can qualify for even more preferential U.S. tax treatment - sometimes up to 100% tax-free gains.

The three tax sections of the Internal Revenue Code (IRC) that every startup investor should be aware of are:

• Section 1202 (gains)
• Section 1045 (rollovers)
• Section 1244 (losses)

We previously covered five key tax questions every startup investor must answer. Let’s now explore the potential federal tax write-offs from one of those questions in more detail.

Section 1202 - up to 100% exemption on QSBS gains (up to $10M or 10X cost basis)

The first startup investment tax benefit is under Section 1202 of the Int...more