Startup companies and their investors can breathe a little easier.  The tax reform bill working its way through the legislative process is likely to include provisions that, if passed into law, could help early stage companies.

Background

In November 2017 the House passed its tax reform bill, H.R. 1 – also known as the Tax Cuts and Jobs Act.  It received significant media attention for, among other things, lowering the corporate tax rate to 20%.  This stands to benefit for-profit corporations of all sizes.

Yet to members of the startup community, the bill shows something perhaps even more interesting – a focus on promoting innovation and entrepreneurship.  New companies often do not have revenues, and their investors take significant risks.  Because of these characteristics, these companies arguably deserve tax treatment that is different from that of established businesses.

House Majority Leader Kevin McCarthy, along with the vast majority of his fellow House Republicans, supported the bill.  He said in a November 1 Financial Times piece that “we need a dynamic tax code that promotes the competition, risk-taking and innovation that is the foundation of the 21st-century economy.”[1]

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