Tax
QSBS (Qualified Small Business Stock)
Quick definition
Tax exclusion for gains on qualifying startup stock, up to 100% after 5 years (tiered from 3 years for post-July-2025 stock).
Under IRC Section 1202, gains on QSBS can be excluded from federal tax. For stock acquired after July 4, 2025, the One Big Beautiful Bill Act introduced a tiered exclusion (50% after 3 years, 75% after 4, 100% after 5), raised the per-issuer cap from $10M to $15M (indexed from 2027), and lifted the gross-assets ceiling from $50M to $75M. Stock acquired on or before July 4, 2025 keeps the old rules: 100% exclusion after 5 years, up to $10M or 10x basis. Founders and early employees should confirm QSBS eligibility at the time of grant. It's one of the most valuable tax breaks available to startup employees.
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Frequently asked questions
- What is QSBS (Qualified Small Business Stock)?
- Under IRC Section 1202, gains on QSBS can be excluded from federal tax. For stock acquired after July 4, 2025, the One Big Beautiful Bill Act introduced a tiered exclusion (50% after 3 years, 75% after 4, 100% after 5), raised the per-issuer cap from $10M to $15M (indexed from 2027), and lifted the gross-assets ceiling from $50M to $75M. Stock acquired on or before July 4, 2025 keeps the old rules: 100% exclusion after 5 years, up to $10M or 10x basis. Founders and early employees should confirm QSBS eligibility at the time of grant. It's one of the most valuable tax breaks available to startup employees.
- Why is QSBS (Qualified Small Business Stock) important for startups?
- QSBS (Qualified Small Business Stock) is a tax concept that matters for startup founders because it shows up in fundraising readiness, financial decision-making, and operational discipline at the stage where mistakes are expensive to undo. Founders who understand it are better prepared for diligence, board meetings, and investor conversations.
- What category does QSBS (Qualified Small Business Stock) belong to?
- QSBS (Qualified Small Business Stock) is a Tax term in the StartupCFO finance glossary, alongside other tax concepts that founders, CFOs, and accountants use in startup operations and reporting.
- Where can I learn more about QSBS (Qualified Small Business Stock)?
- Beyond this definition, see the related tax terms below, or explore StartupCFO's insights and tools that put QSBS (Qualified Small Business Stock) in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
Service spotlight
Planning a QSBS-eligible exit?
Our tax team handles §1202 elections, basis tracking, and §1045 rollovers, and runs the math state-by-state so you know exactly what you'll owe.
