Tax-favored Qualified Small Business Corporation status could help you thrive
Operating your small business as a Qualified Small Business Corporation (QSBC) could be a tax-wise idea.
Tax-free treatment for eligible stock gains
QSBCs are the same as garden-variety C corporations for tax and legal purposes — except QSBC shareholders are potentially eligible to exclude from federal income tax 100% of their stock sale gains. That translates into a 0% federal income tax rate on QSBC stock sale profits! However, you must meet several requirements set forth in Section 1202 of the Internal Revenue Code, and not all shares meet the tax-law description of QSBC stock. Finally, there are limitations on the amount of QSBC stock sale gain that you can exclude in any one tax year (but they’re unlikely to apply).
Stock acquisition date is key
The 100% federal income tax gain exclusion is only available for sales of QSBC shares that were acquired on or after September 28, 2010.
If you currently operate as a sole proprietorship, single-member LLC treated as a sole proprietorship, partnership or multi-member LLC treated as a partnership, you’ll have to incorporate the business and issue yourself shares to attain QSBC status.
Important: The act of incorporating a business shouldn’t be taken lightly. We can help you evaluate the pros and cons of taking this step.
Here are some more rules and requirements:
- Eligibility. The gain exclusion break isn’t available for QSBC shares owned by another C corporation. However, QSBC shares held by individuals, LLCs, partnerships, and S corporations are potentially eligible.
- Holding period. To be eligible for the 100% stock sale gain exclusion deal, you must hold your QSBC shares for over five years. For shares that haven’t yet been issued, the 100% gain exclusion break will only be available for sales that occur sometime in 2029 or beyond.
- Acquisition of shares. You must acquire the shares after August 10, 1993, and they generally must be acquired upon original issuance by the corporation or by gift or inheritance.
- Businesses that aren’t eligible. The corporation must actively conduct a qualified business. Qualified businesses don’t include those rendering services in the fields of health; law; engineering; architecture; accounting; actuarial science; performing arts; consulting; athletics; financial services; brokerage services; businesses where the principal asset is the reputation or skill of employees; banking; insurance; leasing; financing; investing; farming; production or extraction of oil, natural gas, or other minerals for which percentage depletion deductions are allowed; or the operation of a hotel, motel, restaurant, or similar business.
- Asset limits. The corporation’s gross assets can’t exceed $50 million immediately after your shares are issued. If after the stock is issued, the corporation grows and exceeds the $50 million threshold, it won’t lose its QSBC status for that reason.
2017 law sweetened the deal
The Tax Cuts and Jobs Act made a flat 21% corporate federal income tax rate permanent, assuming no backtracking by Congress. So, if you own shares in a profitable QSBC and you eventually sell them when you’re eligible for the 100% gain exclusion break, the 21% corporate rate could be all the income tax that’s ever owed to Uncle Sam.
Tax incentives drive the decision
Before concluding that you can operate your business as a QSBC, consult with us. We’ve summarized the most important eligibility rules here, but there are more. The 100% federal income tax stock sale gain exclusion break and the flat 21% corporate federal income tax rate are two strong incentives for eligible small businesses to operate as QSBCs.
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Account-based marketing can help companies rejoice in ROI
When it comes to marketing, business owners and their leadership teams often assume that they should “cast a wide net.” But should you? If your company is looking to drive business-to-business (B2B) sales, a generalized approach to marketing could leave key customers and optimal prospects feeling like they’re receiving vague messages from a provider that doesn’t really know them. That’s where account-based marketing comes in.
Simply defined, account-based marketing is a strategy under which marketing and sales teams collaboratively focus on targeted high-value accounts. The objective is to create a customized experience for each account that locks in the buyer long-term through deep relationship building and personalized service.
Benefits and risks
The primary potential benefit of a successful account-based marketing campaign is return on investment (ROI). By focusing on customers and prospects most likely to invest substantial dollars in your products or services, you’ll better position yourself to win those odds and bring in substantial revenue. Indeed, the internet abounds with marketing surveys indicating that large percentages of responding B2B companies have gotten a higher ROI from account-based marketing than from other strategies.
Another potential benefit is better aligning marketing with sales. Many businesses struggle with mismatched messaging coming from the marketing and sales departments, respectively. This can lead to customer confusion and internal conflicts. Account-based marketing requires marketing and sales to work together to devise a unified, unique approach to each targeted account.
A third potential benefit is establishing your B2B company as an industry expert. In most industries, when word gets out that a company is successfully marketing directly to certain well-known players, that business’s reputation rises because, clearly, it “speaks the language.”
Of course, account-based marketing has its risks. The biggest one is, as you might’ve guessed, a negative ROI. You’ll need to invest substantial time and resources on each targeted account. If the initiative flounders, the resulting losses can be steep. You may also end up ignoring other customers or prospects. Your business could even hurt its reputation by interacting with a major industry player in a less than flattering way.
3 steps to success
So, how do you avoid those downsides? Here are a three general steps to success:
1. Create a framework. Before doing anything, your business will need a broad framework for executing an account-based marketing strategy. A good way to build one is to use a readily available template to map out the process. You’ll also need to form a dedicated account-based marketing team. You might even invest in specialized software to automate everything.
2. Choose your targets. This may be the most important step! You’ve got to pick the customers and prospects that are the best fits for account-based marketing. It’s generally best to start with a short list or even just one or two. Next, meticulously research key details about each business, such as its mission, size, revenue model and spending patterns. Also, identify the specific individuals you’ll need to win over within the target company.
3. Design, execute and analyze. As mentioned, you’ll need to design a customized campaign for each account. Do so with great care, relying on your research and meaningful interactions with contacts at the business in question. From there, be prepared to measure and analyze your results and iterate the campaigns as necessary.
A significant boost
Account-based marketing isn’t feasible for every business. But if you believe that messaging directly to a few key customers or prospects could give your B2B company’s sales a significant boost, it’s worth considering. For help projecting the results of an account-based marketing campaign, or assistance choosing and analyzing metrics for a campaign in progress, contact us.
© 2024