

Ask HN: How do acquisition taxes work? - lquist

I&#x27;ll probably end up asking my lawyer this as well, but I thought others on HN may benefit from having this info, as I couldn&#x27;t seem to find it.<p>Assuming a standard SV startup that&#x27;s incorporated as a Delaware C corp and assuming that I&#x27;ve done my 83b election filing (http:&#x2F;&#x2F;ayrlaw.com&#x2F;what-is-an-83b-election-and-when-do-i-make-it-part-1-with-graphic&#x2F;), like a responsible founder, what taxes are incurred when I sell my company? My guess is that personal taxes are the main hit here, but is this considered income or capital gains? Any other considerations?
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patio11
Mostly, capital gains taxes. Long term or short term depending on how long
you've held the asset. You may be assessed these by both the US federal
government and your state of residence. (The situation is more complicated
internationally... as always.) In the United States, you almost always want
things structure such that income is classified as capital gains rather than
ordinary income, because your effective tax rate will almost certainly be
lower that way. (This is, again, almost certainly what will happen as a result
of your exit. That's not totally guaranteed, though -- just like we geeks are
pretty good about getting integers to behave like strings when we need them
to, a good lawyer or accountant can often propose a way to structure a
transaction such that it has desirable properties.)

Talk to an accountant before you found a company (goes for you and for
everybody else) and talk to them again before and after the sale; there are
some subtleties.

Ask about "qualified small business stock" if you're pretty sure this is not
your last rodeo and you've been doing your startup for 5+ years.

An example of a good reason to talk to accountants prior to doing things: I
invested a very small amount of money in a tech startup. My accountant
suggested that I consider investing through a self-directed Roth IRA, which
would (if the company IPOed) let me avoid paying any capital gains taxes on it
or any investments made subsequently with that money (if I were willing to
wait until retirement to touch the funds). In the event that retirement wasn't
an option, there's a plan B: the magic words are "substantially equal periodic
payments" and your accountant can explain the calculation to you.

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tptacek
Capital gains, very situation-specific, and you are going to need an
accountant.

