House Moves Forward Plans To Change How VCs Are Taxed

Venture Capital

from the good-or-bad? dept

For the past year or so the venture capital world has been up in arms over proposals to change how a portion of their income is taxed. The key issue is whether the “carry” that VC’s get on profits should be taxed at regular income tax levels or at much lower capital gains rates. Since risk capital is an important fuel for innovation, some VC’s make the case that a change in taxation rates could limit the interest in investing institutional money. However, others, such as VentureBeat, make a compelling case that while profits on your own invested money should (and would, under the plan) remain as a capital gain, the carry (which comes from the profits VC’s make by investing someone else’s money) do not deserve capital gains rates. While the argument goes on, it appears that our Congressional Representatives have not yet been convinced by the VCs, as they’ve passed a new tax bill that would, in fact, change the treatment for VCs. It still needs to pass the Senate and get signed by the President — both of which seem less likely to approve this change — but some of the venture capitalists you know may be holding off a bit on buying anything big and expensive for a little while.

Filed Under: capital gains, carried interest, taxes, venture capitalists