QSBS (Qualified Small Business Stock)
QSBS (Qualified Small Business Stock) QSBS is a tax exemption that allows founders to exclude up to $10 million in capital gains from federal taxes when selling qualified small business stock.
This powerful tax strategy can save millions for entrepreneurs who structure their equity correctly under Section 1202 of the tax code.
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How QSBS Works
Qualified Small Business Stock represents a unique tax opportunity for founders of eligible C-corporations. By meeting specific requirements at issuance and during the holding period, entrepreneurs can dramatically reduce their tax liability upon exit.
The exemption applies to companies with gross assets under $50 million, requiring the business to be an active trade or qualified industry. Founders must hold the stock for at least five years to fully benefit from the tax exclusion.
Most founders miss this opportunity due to complex qualification criteria and lack of early-stage tax planning. Proper structuring from company formation is critical to maximizing QSBS benefits.
Key Points
- •Exclusion of up to $10 million in capital gains
- •Requires C-corporation status and specific asset thresholds
- •Five-year minimum holding period
- •Applies to specific industries and active businesses
- •Can save millions in federal and state taxes
Frequently Asked Questions
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Understanding qsbs (qualified small business stock) is critical when navigating M&A transactions. Quantive has helped hundreds of business owners through this process.