Docusign has gone public! So far, the market has responded extremely well, and as of May 25, 2018, the stock had risen in value to $46.37.
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As you patiently (or impatiently) wait for the blackout period to end, you are undoubtedly crafting a plan to sell. The other part of this you generally can’t hide from is taxes. Until now!
As part of the most recent Federal tax legislation, there is a newly created tax incentive called “opportunity zone investing.” The Tax Cuts and Jobs Act provided for this benefit, and it could be a huge benefit for you. Here is an example of how it works:
- Your stock was purchased for $1.99 per share and let’s say you have $100,000 worth at that value.
- As of today, you have $2,330,150 of value – $100,000 of the original investment and the remainder as untaxed gains. (let’s exclude AMT for now – you may have paid a lot of that as well)
- If you sell – you will need to pay long-term capital gains on $2,230,150 which could be as high as 40% if you are in California. If you are in Washington, it will be closer to 25%.
- If you invest the $2,230,150 of untaxed gains into an opportunity zone fund, the gain is not taxable, and you don’t have to pay taxes today at the Federal level for sure and potentially even the state level (consult your state laws or ask us!)
Now let’s assume you invest the $2,230,150 into an O-Fund to invest in Airbnb property or real development etc. and in 10 years that investment is worth $5,230,150.
- You pay NO TAX on the additional $3,000,000 of gain in the O-Fund at the Federal level and potentially the state as well.
- Your initial deferred gain of $2,230,150 is now only taxed at 85% of the gain (15% forgiveness), so you save taxes on that as well.
- This could increase your after-tax rate of return by up to 74% (depending upon your tax rate)
Simply put, this is the first time anything like this has been available to investors and may be the right time for you to consider a change. Please consult with your legal, financial and tax advisor(s) and contact us if you have any questions.