New York Times, How Republicans Supersized Silicon Valley’s Favorite Tax Break:

The prospect of earning millions of dollars would, at first blush, seem like reason enough to want to start a successful company. Yet Congress has for years sweetened the deal, offering start-up founders and early investors the added incentive of making much of their money completely tax-free.

Tucked into the huge set of tax cuts that Republicans passed into law this month was an expansion of the unusually valuable tax break. The generosity of the change came as a surprise to even some in Silicon Valley, where the tax measure is popular.

“Everyone was like: ‘Are you joking?’” Christopher Karachale, a San Francisco lawyer who helps people claim the tax break, said. “These founders and early employees, they’re already getting a huge benefit. So if anything people are thinking: ‘Wow it’s remarkable the statute got opened up all this more.’”

The tax break, known as the qualified small business stock exclusion, is a decades-old element of the tax code that Congress has repeatedly made more generous.

It allows investors and founders to skip out on paying taxes when they cash out their shares in start-ups. For early owners of stock in a business that started as a shoestring operation and became a major publicly-traded company, like Lyft or LinkedIn, or was bought out by another firm, that could mean millions in tax savings. …

The tax break, known as the qualified small business stock exclusion, is a decades-old element of the tax code that Congress has repeatedly made more generous. It allows investors and founders to skip out on paying taxes when they cash out their shares in start-ups. For early owners of stock in a business that started as a shoestring operation and became a major publicly-traded company, like Lyft or LinkedIn, or was bought out by another firm, that could mean millions in tax savings.

At that point, up to $15 million in gains, rather than $10 million, won’t be hit with the top capital-gains tax rate of 23.8 percent. (The new limits will climb over time with inflation.) And the tax savings can be multiplied by depositing stocks in trusts, a practice called “stacking” that has become popular with those in Silicon Valley who hit it big. …

“It’s everybody’s worst picture of the tax code,” said Victor Fleischer, a tax law professor at the University of California, Irvine. “This little loophole that people have created and exploited by the very richest people with the very best advisers and, meanwhile, we’re supposed to have this big tax bill that’s delivering for the little people.”

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