Patent Attorney and Founder
When you go to sell things that you own it doesn’t always get taxed the same way there’s there’s ordinary income and there’s capital uh gain or loss capital income and that’s just a you know a surface approach there but the thing that gets people’s attention is that the top capital gains rate is 20 percent whereas the top ordinary income tax rate before net investment income is 37.
net investment income tax is 3.8 for the highest earners so we’re looking at almost a 20 difference in tax for what you earn on your self-created and tangible so here’s here’s what they need to know right here in 2017 a law that was extremely comprehensive was passed the tax cuts and jobs act it took effect january 1 of 2018 but many people still aren’t aware of a tremendous change that was made at that time and it’s this self-created intangibles secret processes other ideas for running a business are no longer capital assets under section 1221 a3 the um it exempts any self-created and tangible from being a capital asset the result of that is that if you create something or you create something while working for a company and then that company wants to sell that asset it will not get capital gain treatment will be at the ordinary income rate for that entity or that person and that’s huge news and it sounds it sounds uh pretty terrible to all of us um and so it was in one of these circumstances where my client was asking me what are the ways that i can get around this miss tax attorney don’t you let’s see nyu llm at work um and so um the answer is that we have to travel back in time to when the client meets with you jd or matt or karen and at that time there needs to be a serious look at patenting the idea obviously all of you and many people watching want to patent their ideas for many reasons but for tax purposes there is an excellent reason is this
section 1235 of the code allows you to get capital gains treatment when you sell substantially all of the rights to a patent and that that is now an exception to the general rule that self-created intangibles are ordinary