Florida does not have a state income tax for individuals; therefore, if you receive capital gains in Florida there is no tax regardless if Section 1202 100% tax exclusion on capital gains from the sale of QSBS applies. Capital gains on the sale of QSBS will not only be excluded from federal income taxes but also state income taxes if all of the guidelines are followed.
Federal QSBS Exclusions and State Tax Implications
Allowing capital gains tax exclusions for Qualified Small Business Stocks (QSBS) encourages investment in US small business. QSBS laws help provide capital for these businesses while offering a savvy tax strategy for investors who want to minimize capital gains taxes.
Investors who hold qualified small business stock for at least 5 years can exclude up to $10,000,000 or more of their recognized capital gains from their taxable income if certain criteria are met.
Learn more about the criteria for Qualified Small Business Stock.
Each state has its own treatment of QSBS gains at the state income tax level. There are three ways in which states typically address the exclusion.
- Some states fully conform to the Federal QSBS guidelines, and therefore allow a full exemption if the stock meets the Section 1202 QSBS criteria. States conform to the federal tax code on either a static or rolling basis. “Static” conformity means the state starts conforming to the Internal Revenue Code as of a specific date. “Rolling” conformity means that the state adopts IRC changes as they occur. Alternatively, certain states do not have state income taxes and therefore there is no QSBS implication at the state level.
- Some states partially conform to the Federal QSBS guidelines, whereby the capital gains from QSBS are exempt if additional criteria beyond the Federal guidelines are met, such as only allowing exemptions if the QSBS gains were from a company doing business in that state.
- Lastly, certain states do not allow any capital gains exclusions for QSBS.
Find out how QSBS is recognized by each state here.
Florida QSBS Exemptions
Florida does not have a state income tax for individuals; therefore, if you receive capital gains in Florida there is no tax regardless if Section 1202 100% tax exclusion on capital gains from the sale of QSBS applies. Capital gains on the sale of QSBS will not only be excluded from federal income taxes but also state income taxes if all of the guidelines are followed.
Entrepreneurship in Florida
Floridian entrepreneurs have access to the Florida Small Business Development Centerwhich has been serving small business owners in the state for 45 years. They have resources for both new and existing businesses as well as networking services and training.
The State of Florida has “implemented a decentralized approach to economic development which focuses on decision-making and leadership at the local level rather than a state agency.” Startups looking to take root in Florida can find support from an agency close to home.
Ideagist has a comprehensive list of startup accelerators and incubators in the state of Florida.
Among other industries, the following industries in particular thrive in the state:
- Aviation and Aerospace
- Clean Tech
- Defense and Security
- Financial and Professional Services
- Headquarters
- Information Technology
- Life Sciences
- Logistics and Distribution
- Manufacturing
Tax Incentives for Investors in Florida
The state of Florida has a Capital Investment Tax Credit which is,
“used to attract and grow capital-intensive industries in Florida. It is an annual credit against the corporate income tax which is available for up to 20 years in an amount equal to 5% of the eligible capital costs generated by a qualifying project.”
Florida Opportunity Zones
Florida is home to approximately 427 Opportunity Zones.
Opportunity Zones (OZ) were created to help economically distressed areas by giving investors preferential tax treatment with new investments in these “specified” areas. Similar to QSBS, if the investment meets eligibility criteria and is held for at least 5 years, the investor can defer or be exempted from capital gains taxes (i.e. if held for at least 5 years, the taxpayer can exclude 10% of the gain and the percentage increases (or “steps up”) to 15% after 7 years).
Opportunity Zone investments can be in the stock of an OZ Qualified Business, an OZ partnership interest or an OZ business property.
To be a Qualified Opportunity Zone Business, the business must meet requirements such as at least 50% of the business’s total gross income being derived from within the Opportunity Zone. To learn more about Opportunity Zone qualifications, please refer to the Opportunity Zones and QSBS article.
Under the Tax Cuts and Jobs Act of 2017, 26 USC 1400Z-2, Florida made Opportunity Zones, is also home to the associated tax relief incentives that accompany these zones which are effective for tax years beginning on or after December 31, 2017. Refer to this map for the Opportunity Zones in the state and here for all Opportunity Zones in the United States.
Some Examples of Florida Opportunity Zones include:
- Lakeview Professional Campus
- Crawford Diamond Industrial Park
- One Bayfront Plaza
See more at Florida Department of Economic Opportunity.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
