QSBS Experts
Save $10M in capital gains
We help founders, investors, and startup shareholders reduce their tax bill by verifying their Qualified Small Business Stock (QSBS) exclusion status.
QSBS Experts
What is QSBS?
The QSBS tax exemption is a unique tax benefit that relieves shareholders from federal (and in some cases, state) capital gains taxes upon the sale of their shares. By taking advantage of this tax break, individuals can potentially save up to $10M in capital gains. Irrespective of whether you are a founder, employee, or investor, your shares may qualify for QSBS. However, it is important to note that not all small businesses meet the criteria for QSBS eligibility.
Qualified small business (QSB) rules for eligibility
The business should be an operating company that is legally registered as a U.S. C-corporation. The company's total assets should not exceed $50 million before and after the equity issuance. Additionally, a minimum of 80% of the company's assets should be actively utilized in a qualified trade or business.
Cases of QSB disqualification
Certain actions have the potential to invalidate its QSB status, which can then affect the ability of shareholders to benefit from the QSBS tax exclusion. Examples of disqualifying actions include repurchasing shares, managing investments in cash, surpassing asset thresholds, and various others.
QSBS Attestation Letter
The QSBS attestation letter is an official document issued by your company to confirm that your shares meet the IRS criteria for being classified as QSBS. Every year, we conduct a thorough evaluation of your company's QSBS status and provide you with an attestation letter. This letter can be shared with investors and employees to support your tax filings.
QSBS holding requirements
To qualify for the tax benefit, it is necessary to retain your QSBS-eligible stock for a minimum of five years. If you choose to sell your eligible shares before the completion of the holding period, you may incur tax liabilities on the sale.
Selling QSBS stock
Once the five-year holding period has elapsed, you have the opportunity to sell your QSBS-qualified stock and potentially avoid paying federal taxes on up to 100% of the capital gains, provided you have fulfilled all necessary conditions. There are various methods available for selling private company stock, including tender offers (buyback events), bilateral secondary transactions, and IPO events.
QSBS tax treatment & benefits
When you sell shares, it's common for them to be subject to either short or long term capital gains rates. Short term capital gains rates can go as high as 37%, while long term capital gains rates can reach up to 20%. However, if the shares have QSBS (Qualified Small Business Stock) status, there's a chance to secure a 0% capital gains tax rate for federal purposes. It's worth mentioning that the timing of when you obtained the QSBS shares affects the specific tax benefits you may receive.
