Tax Planning for Investments

This is how you can save on capital gain taxes after an exit! Securing an exit for your startup is a huge milestone but it comes with its own set of financial considerations, This tax burden can be overwhelming, but there’s good news for founders in India!  If you held shares in your company for 2+ years, the Indian ITA provides a way to potentially reduce your tax liability by reinvesting your gains into residential real estate. Section 54F allows complete exemption from capital gains tax if you meet these conditions:  → The capital gains must be reinvested in a new residential property in India. You can purchase this property up to 1 year before or 2 years after the share sale. If constructing a property, you have 3 years from the sale date to complete construction.  → You must not own more than one residential property (excluding the one you plan to purchase).  → The exemption applies only if the entire sale proceeds are invested and is capped at ₹10 crore.  For example, if you sell your company for ₹15 crore (with a zero-cost acquisition) and purchase a property worth ₹12 crore, the exemption will apply to ₹10 crore. You’ll still pay capital gains tax on the remaining ₹5 crore.  But this purchase must be for self-occupation or for a close relative. Any violation, such as selling the property within 3 years, could lead to withdrawal of the tax benefit.  If you’re a startup founder in India, how are you planning to reinvest your gains post-exit? #taxes #startups

Most Family Offices don’t lose wealth by making poor investment decisions—they lose it through inefficiencies. Taxes, fees, and outdated structures quietly erode returns, often without investors realizing it. The most sophisticated Family Offices have figured this out. Instead of focusing solely on higher returns, they prioritize something far more impactful: Structural Alpha. This isn’t about choosing the best hedge fund or private equity deal. Structural Alpha is about optimizing how investments are structured to maximize after-tax returns and eliminate inefficiencies. It’s a way to achieve stronger outcomes not by taking on additional risk but by being more strategic about how capital is deployed. A prime example is Private Placement Life Insurance (PPLI), a tax-efficient structure that allows Family Offices to significantly reduce the tax burden on investments like credit funds. Without it, returns on a credit strategy might shrink from ten percent to seven percent after taxes. With PPLI, those gains can be preserved for a fraction of the cost. Another example is tax-aware investing. Tax-loss harvesting extends far beyond its original application, allowing Family Offices to structure portfolios in a way that minimizes tax liabilities without compromising performance. For Family Offices, this isn’t just an advantage—it’s an essential approach to wealth management. Family Offices exist to preserve and grow generational wealth, yet many still operate within traditional investment frameworks that leave money on the table. By integrating Structural Alpha strategies, they can improve after-tax returns without taking on unnecessary risk, reduce compounding inefficiencies, and ensure long-term capital preservation through smarter structuring. The most forward-thinking Family Offices aren’t just searching for strong investments—they’re refining how they invest. Structural Alpha isn’t a trend; it’s a shift in approach that separates those who quietly optimize their wealth from those who unknowingly give a portion of it away.

Think the new $40,000 SALT cap solved your tax problem? Think again. For high-income business owners, the real solution is still the Pass-Through Entity Tax (PTET). Here’s why PTET remains the smarter play even with the higher cap: 1)The $40K SALT cap phases out fast: If your income exceeds $500K (joint), the cap quickly shrinks, often back to the $10K minimum. For high earners, the benefit is minimal or nonexistent. 2) PTET stays fully deductible: The OBBBA did not touch PTET. State income tax paid at the entity level is still fully deductible on the federal return, and that benefit flows to owners regardless of itemizing. 3)Works even if you don’t itemize: Since PTET is deducted before income passes through, you get the federal benefit no matter what. 4)Predictability matters: The $40K cap is temporary (2025 to 2029). PTET remains steady and reliable for long-term planning. 5)State rules differ: PTET elections vary, so you must coordinate with your CPA and review annually. For most high-earning pass-through owners, PTET still delivers far more reliable savings than the new SALT cap ever will. 📌 Bottom line: The SALT expansion helps some, but for high earners with large state tax bills, PTET continues to be the stronger strategy.

Investment hates uncertainty—when tax rules change, investments change with them.   And a recent survey shows that this is particularly true in the energy sector   Last week, the American Council on Renewable Energy (ACORE) released their “Tax Stability for Energy Dominance” report which surveyed clean energy investors and developers representing over $15 billion in investments.   The good news is most investors expect to increase their investments over the next three years if there are no policy modifications to federal energy tax credits. This makes sense. Energy demand is rising, project costs are stable, and domestic clean energy supply chains are building out rapidly.   However, if tax policy shifts, investors will drift.   The ACORE survey finds that if tax credits go away or uncertainty is injected into markets, 84% of investors and 73% of developers anticipate decreasing their activity in clean energy.   And of course, this makes sense too. The deals, contracts, and investments that these investors planned were built on the expectation of stable policy. When that policy is changed, investors and developers will reconsider their actions.   To be blunt, America cannot afford to undercut clean energy’s momentum right now.   We are facing the largest increase in energy demand since World War 2, and we need every electron on our grid to meet this challenge. Pulling the rug out from under these projects will only reduce investment, destroy jobs, and raise energy costs.   Read more from this timely survey: https://lnkd.in/exzbR6Xy

Can Capital Reduction Be Undertaken to Effectively Convert a Company into a Private InvIT? In a recent decision, the NCLAT held that the conversion of share capital into a loan was permissible through a capital reduction under Section 66 of the Companies Act, 2013. A company in the infrastructure sector, facing financial losses, undertook a capital reduction involving the cancellation of a large portion of the original equity shares. Instead of a direct payout, the cancelled shares were converted into interest-bearing unsecured loans at a 14% coupon rate. While the NCLT, Mumbai Bench, initially rejected the proposal, the NCLAT approved it, emphasizing the company's discretion under Section 66 to reduce share capital "in any manner" with shareholder approval. Key Takeaways 1. Indirect Private InvIT Mechanism: The structure effectively mirrors an Infrastructure Investment Trust (InvIT). Unlike formal InvITs regulated by SEBI, this mechanism results in consistent income streams to the shareholders through loan repayments, providing a simplified alternative for upstreaming income from infrastructure assets. 2. Capital Gains Tax / Deemed Dividend: Since the company was loss-making, deemed dividend taxation under Section 2(22)(d) was not attracted. Additionally, no capital gains tax arose as the consideration (loan amount) matched the acquisition cost of shares. Upon loan repayment, the principal would not trigger the newly introduced buyback tax (which is considered deemed dividend, irrespective of the cost of acquisition), and while interest income would be taxed for shareholders, the company could claim interest deductions — which is absent in dividend payouts. 3. Corporate Law Flexibility: Unlike share buybacks which are subject to regulatory caps and procedural restrictions, repayment of loans going forward (effectively return of share capital) will not be subject to such caps. 4. FEMA Considerations: This route may not be feasible for companies with foreign shareholders. Converting non-debt instruments into External Commercial Borrowings (ECBs) is impermissible under FEMA. Moreover, assured returns on equity instruments are not permissible under FEMA. 5. IndAS Implications: Since the share capital is now reclassified as a financial liability, with interest payments treated as an expense, this will adversely impact the company's debt-to-equity ratio and reduce its Profit After Tax (PAT). While the company may benefit from interest expense deductions for tax purposes, the increased leverage and lower profitability could affect future fundraising, lender covenants, and credit ratings. Broader Industry Impact This ruling is particularly relevant for the infrastructure sector, where companies often face financial challenges due to high capital expenditure and long gestation periods. Converting shares into loans could help manage cash flows while providing investor returns in a structured manner. Katalyst Advisors #NCLT #Tax #InvIT #FEMA

Opportunity Zones 2.0 Over the last six years, Opportunity Zones have become a significant tool in driving investment into underdeveloped areas. It is estimated that OZs have attracted nearly $100 billion in private capital since their inception in the Tax Cuts and Jobs Act of 2017. The next Congress is likely to extend, if not expand, them. In our latest piece, Ross Baird, Michael Saadine and I believe it’s time to assess anew the rationale for this tax incentive, building on changing market dynamics and lessons learned. The original premise for OZs, backed by the Economic Innovation Group and Senators Cory Booker and Tim Scott, was that a generous tax incentive could entice investors to get out of their comfort zone and invest in distressed communities that are rarely the focus of private, return oriented capital. The rational for such investment remains strong, but market conditions have changed dramatically. 2025 finds us with significant development challenges, a downtown commercial real estate crisis, worsening housing challenges, growing industrialization in small communities and rising demand for energy. These market shifts require us to examine the best case examples from the first round — eg the use of OZs in San Antonio and Erie to regenerate downtowns, the broader effort by Opportunity Alabama to raise local OZ capital for broad effect. These dynamics and lessons make a case for reauthorization to enable a reselection of zones in certain cases, a preference for housing production and renovation and an integration of OZs with other public incentives. OZs represent a powerful tool for addressing some of the most pressing challenges facing urban, suburban and rural communities. With a little focus, Opportunity Zones 2.0 could be transformative. https://lnkd.in/e2H-EVPE

A few more hard earned lessons about early exercise of options and QSBS (Qualified Small Business Stock) for early stage startup employees, as follow up to my last post ➤ Early exercise is a huge benefit for early startup employees as it helps a lot with taxes and unlocks the QSBS benefit. You purchase both vested and unvested shares upfront. If you leave before all your shares vest, the unvested portion is repurchased by the company at your original strike price. ➤ Long-term capital gains rates: with early exercise you start the long term capital gains clock. ➤ Eliminates the spread problem: the delta between strike price and FMV (Fair Market Value) at the time of exercise. If your strike price is $1 but the FMV is $10 at the time of exercise, you still only pay $1 per share but the $9 of spread is added as an adjustment in the calculation of the Alternative Minimum Tax (AMT). ➤ The problem of spread can be exacerbated by a 90-day exercise window (you have 90 days to exercise your options after leaving the company) as you might be in a situation where are subject to AMT for illiquid stock. Early exercises eliminates this problem 💡 The main reason to not exercise early is the risk of losing the money but if you don’t believe in the company to use the early exercise benefit maybe you should not be there ➤ From options to QSBS: founders and investors purchase their shares directly from the company so their stock is QSBS. Employees, need to exercise their options while the the corporation is QSB. The company must allow early exercise or they vest and exercise some options before the $50M asset line has been crossed ➤ Your shares qualify as QSBS is you buy them directly from a domestic C-corporation with gross assets of $50M or less at the time of stock issuance (practically means to have raised less than $50M) ➤ $10M exclusion: The main benefit of QSBS is the exclusion of up to $10M in gains (or 10x your basis if it's more) from federal taxes. ➤ 5-Year holding requirement: to unlock the tax benefits ($10M tax exclusion), you must hold the stock for at least five years 💡 Gifted shares maintain the QSBS eligibility. That combined with the fact that the exclusion is per tax entity it means that if you gift QSBS shares to your parents or kids trust funds, etc. they get their own exclusion 💡 In an acquisition, if stock gets involved, that is usually organized as a tax-free stock exchanged. The acquirer stock you get in exchange for your QSBS inherits the benefits. This is important if at the time of the acquisition the 5 year requirement was not yet satisfied at the time of the transaction ➤ Rollover of QSBS: in certain situations, you can roll over your QSBS gains into another QSBS-eligible investment, deferring taxes. For example, when investing at a startup after selling your QSBS All this only matters upon success but it's an important benefit to early employees

I sold my first company in 2020 for a life changing amount But I knew nothing about taxes and left money on the table Now that I'm running my second business, here are some personal finance things I now think about: • QSBS - Ensure your company is set up for QSBS as this allows you, your employees and your investors to pay no taxes on $10M each when you sell your company. • Your 83b Election - After you receive your equity, ensure you file an 83(b) election in the first 30 days and retain evidence of the submission. This could save millions in taxes! • Vesting - Make everyone vest equity, and longer than you think you need to. Standard vesting in 4 years & that's not enough to build a great company. But allow people 10-years post employment to buy their options. • Multiplying QSBS - Before raising a Series B, look into multiplying your QSBS exemption. QSBS is a $10M exemption per shareholder, but you can gift shares to family members or set up trusts to multiply it to $30, $40 or even $50M! • Secondaries - As the company does better, you may be tempted to pay yourself a very high salary. Don't do that - smaller secondaries (selling 1%-5%) every time you raise money is much more tax-efficient. • Exit Planning - Build the company like you're going to run it forever, otherwise you might just have to. Ironically, the best way to sell your business for a lot of money is to not be looking to sell your company. With that said, the hardest part is actually building a company that ends up being worth something... so that's where you should spend most of your time (vs optimizing your personal finances) Anything I'm missing? Leave a comment And if you like this type of content, I'm teaching a free workshop later this month on Personal Finance for Startup Founders: https://lnkd.in/e-3-meRG I'll send everyone who registers my free 2,500 word guide on optimizing QSBS!

Have you ever made quarterly estimated tax payments recommended by your accountant only to find out you have a sizable tax bill (or refund) at the end of the year anyway? Here's why... Estimated payments recommended by your accountant are typically based on avoiding an underpayment penalty and may or may not be anywhere close to what you'll actually owe for the year. Accountants typically base estimated tax payments on a safe harbor calculation which is what determines whether or not you'll be subject to an underpayment penalty. For high earners (adjusted gross income above $150k for a married couple), the safe harbor calculation is 90% of the tax due for the current year, or 110% of the tax you owed last year. In my experience, accountants typically base estimated payments on 110% of the tax you owed last year. And that works fine if your income is increasing by 10% or so every year. But if that's not the case, your estimated payments might be too high or too low compared to what you'll actually owe at tax time. (For our clients, income fluctuates substantially year to year due to fluctuating stock prices on RSUs, exercising NSOs and ISOs, and switching jobs between private and public tech companies where comp packages are quite different.) For our clients, we do a tax projection (actually, we typically do a few as the year unfolds) to estimate what our clients might ACTUALLY owe in taxes based on income, equity compensation, capital gains, tax credits, etc for the current year to get a better sense of what to expect at tax time. This helps clients know what to expect (surprise tax bills are among the worst kinds of surprises), and it helps us support them in planning for the amount they'll owe proactively. If you don't work with a financial planner who provides this service, you can request that your accountant do a tax projection based on expected income and tax events for the current year to get a better sense of what to expect at tax time and minimize the likelihood of a tax surprise.

We saved our client £12,102 in tax without reducing her £120K income. A client running a successful consultancy came to us feeling frustrated. 👉 She was taking £120K a year (£12,570 salary, the rest in dividends). 👉 Her tax bill was way too high and she couldn’t figure out why. 👉 She was losing thousands to HMRC unnecessarily. When we broke down the numbers, the problem became clear. Here's what her original income structure looked like: 💰 Total Withdrawals: £120,000 💰 Salary: £12,570 💰 Dividends: £107,430 At first glance, it looked simple. But here’s where things went wrong 👇 ❌ Loss of Personal Allowance Earning over £100K meant she was losing £1 of personal allowance for every £2 earned over £100K. She lost her full £12,570 personal allowance which cost her an extra £2,514 in tax. ❌ High Dividend Tax Since she took all dividends herself, her taxable dividend income was £106,930 (after the £500 dividend allowance). She was losing thousands just because her income wasn’t structured efficiently. Here’s what we did to fix it: ✅ Transferred Shares to Her Husband Her husband was already helping in the business, so we made him a shareholder and director. This allowed us to use both their tax-free allowances and lower tax bands. ✅ Split the Dividends Instead of her taking all £107,430 in dividends alone, we split them equally (£53,715 each). This significantly reduced the amount of dividends being taxed at 33.75%. ✅ Restored Her Personal Allowance By reducing her individual taxable income below £100K, she reclaimed her £12,570 personal allowance, saving her £2,514 in tax. Here’s how much she actually saved: 📌 Restored Personal Allowance Savings: £12,570 × 20% basic rate = £2,514 saved 📌 Dividend Tax Savings (Before vs. After): - Old Setup (Her Taking All Dividends) Taxable dividends: £106,930 Tax calculation: £37,700 × 8.75% = £3,298.75 £69,230 × 33.75% = £23,364.13 Total Dividend Tax: £26,662.88 - New Setup (Splitting Dividends Between Both Spouses) Each spouse’s dividends: £53,715 Taxable amount per person: £53,215 (after £500 allowance) Tax per person: £37,700 × 8.75% = £3,298.75 £15,515 × 33.75% = £5,238.56 Total tax per person: £8,537.31 Total tax for both spouses: £8,537.31 × 2 = £17,074.62 📌 Total Dividend Tax Savings: Old Tax: £26,662.88 New Tax: £17,074.62 Saved: £9,588.26 📌 Total Annual Tax Savings: £2,514 (personal allowance) + £9,588.26 (dividends) = £12,102.26 The Result: 💰 Same £120K income, but £12,102 less in tax. 💰 More disposable income as a couple. 💰 A tax-efficient business setup that works for them. Don’t assume your current setup is the best one. A little planning can save you thousands every single year. Think you’re overpaying tax? Drop me a DM.