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CT Startup TaxStartup founder tax · by Summer Associates
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The startup founder tax strategy library

Much of a founder's tax at exit is set at formation and the first equity grants.

Best forFounders, employees, and angels in U.S. C corpsPrimary leverGain exclusion
Exit

Qualify for QSBS from day one

Form as a C corp or convert to one, issue stock directly from the company, stay under $75M of gross assets at issuance, and run an active qualified business. The 2025 law added partial exclusions at 3 and 4 years. The exclusion is federal, and California and several other states tax all or part of the gain.

Best forAnyone receiving restricted stock subject to vestingPrimary leverOrdinary income to capital gain
Equity

File the 83(b) election within 30 days

An 83(b) also starts the capital gain and QSBS holding period when the stock is issued to you. If the 30-day window is missed, there is no fix.

Best forSoftware, biotech, hardware, and product companiesPrimary leverDeduction & cash
R&D

Expense domestic R&E under §174A

Starting in 2025, domestic research is immediately deductible. Unamortized 2022–2024 costs can be deducted over 2025–2026. Foreign research is still amortized over 15 years.

Best forCompanies under $5M receipts and within 5 years of first receiptsPrimary leverCash credit
R&D

Apply the R&D credit against payroll tax

The election is made on a timely filed original return, after which the credit offsets employer Social Security and Medicare taxes quarterly.

Best forEarly employees with ISOsPrimary leverAMT management
Options

Plan ISO exercises around AMT

The spread on ISO exercise is an AMT adjustment. Exercising early, when the spread is small, or in measured annual amounts can keep AMT low and set up long-term capital gains.

Best forFounders expecting gains well above $15MPrimary leverAdditional exclusions
Exit

Multiply QSBS with gifting and trusts

Gifted QSBS keeps its status and holding period. Planning must happen well before a liquidity event and with careful attention to anti-abuse rules.

Best forConnecticut companies doing R&D with prior-year gross income of $70M or lessPrimary leverCash refund
Connecticut

Turn Connecticut R&D credits into cash

Claim the 20% incremental and 6% small-business credits for research done in Connecticut, then file Form CT-1120 XCH with a timely return. Refunds are capped at $1.5 million a year. From 2026, partnerships and S corporations have a separate 6% credit with the same exchange.

See the tax on your equity choices before you make them.

In a consultation, we look at your cap table position, option grants, and last return, estimate the federal and Connecticut tax on the exercise or sale scenarios you choose, and tell you whether your shares may qualify for QSBS.

Book a free consultation or call (203) 327-4311 The first consultation is free, with no obligation.
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