Tax & Compliance
Qualified Small Business Stock (QSBS)
Collated by Aparna Devalla, CPA
Curated by Rubric Financial
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What QSBS Is and Why It Matters
- Section 1202 of the Internal Revenue Code allows shareholders of qualified small businesses to exclude up to $10M (or 10x their cost basis, whichever is greater) in capital gains from federal tax
- The exclusion applies to stock in C-corporations acquired at original issuance and held for at least 5 years
- At a 23.8% federal capital gains rate (including NIIT), QSBS can save a shareholder up to $2.38M in taxes on a $10M gain
- Most VC-backed Delaware C-corps qualify if structured correctly from incorporation — but the requirements must be met continuously
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