Everything that you need to know about QSBS

QSBS stands for “Qualified Small Business Stock” which is regulated by the Internal Revenue Service (IRS) under code section 1202 and offers tax benefits to accredited investors, founders, or employees. QSBS is a tax benefit to investors on a federal and in some cases also extends to a state level. The tax benefit excludes 100% of capital gains on the sale of QSBS held for 5 years with tax savings up to the greater of $10 million or 10x the initial investment. Below are high-level rules and  here is a history of QSBS.

To be eligible for QSBS here are the main requirements on a company and investor level with links to explanations:

QSBS Checklist

  1. Does the stock I hold qualify as QSBS?
  2. Is my gain excluded from capital gains taxes?
  3. How much of my gain is excluded from capital gains taxes?
  4. Do I need to apply for QSBS qualification?
  5. Does my state allow the QSBS tax exclusion?
  6. Do my stock options qualify for QSBS?
  7. Can my pass-through venture capital investment(s) qualify for section 1202 QSBS?
  8. How can I find more great QSBS companies to invest in?

Frequently Asked Questions

What is qualified small business stock (QSBS)?

Does My Gifted/Inherited Stock Qualify for QSBS?

If I Buy QSBS Today, Then I Add to My Position Later When It Is Not QSBS, Does That Invalidate My QSBS?

Does Section 1202 QSBS Include Carried Interest?

Do the Business Valuation Affect the Asset Test for QSBS Purposes?

Are Contingent payments on the Sale of QSBS be Covered Under Section 1202?

Does My Inherited Stock Qualify for QSBS?

Do SAFE Notes Qualify for QSBS?

Do I Need To Keep Records of My Stock’s QSBS Qualification?

If I contribute property in exchange for QSBS will I be taxed on the capital gains from the property?

Does all of the stock of the business have to qualify for QSBS for QSBS to be issued?

When does my timeline start for QSBS if I received stock options?

Can I roll over part of my QSBS gain into another QSBS C Corporation and pay taxes on the part that is not rolled over?

Is it possible to both utilize a QSBS exemption and roll-over the non-exempt portion to another QSBS investment?

Should I exercise my options?  i.e. since QSBS 5-year timeline starts when options are exercised…what are the implications of exercising as soon as possible versus waiting until closer to option expiration and how should someone think about that decision.

Can I lose QSBS qualification and get it back?

What country does the company have to be located in for QSBS treatment?

What documentation do I have to provide for QSBS?

Can I give employees QSBS?

Do convertible notes count as QSBS?

When does the clock start ticking for QSBS?

What if I sell my QSBS before five years?

Should I gift QSBS to a charity?

Do I have to pay payroll taxes on QSBS given to employees?

What is the corporate tax rate?

Why should I buy QSBS?

Do I have to pay cash for QSBS?

How does my divorce affect QSBS?

What is the state tax treatment of QSBS?

What is a tax exclusion?

How do I apply for QSBS?

How do I calculate section 1202 tax benefit?

What is the history of QSBS?

Can I take section 1202 on carried interest?

What are the dates of QSBS tax exclusions?

What is the holding period of QSBS?

What company types qualify as QSBS?

Who can own QSBS?

What is the tax exclusion on QSBS?

How do I rollover my QSBS investment?

What is section 1045?

When can I take section 1045 rollover?

Can I incentivize employees with QSBS?

How do stock redemptions affect QSBS?

Qualified small business stock requirement?

IRS section 1202 qualified small business stock checklist?

What is the holding period for QSBS?

Is QSBS excluded from AMT?

Is QSBS excluded from NII?

When do I know that QSBS will no longer apply?

Is there a threshold on the size of the investment?

Is there a threshold on the size of the company?

Can I transfer my QSBS?

Can I buy QSBS from someone else?

Can I gift QSBS?

How a down market may affect QSBS eligibility?

What to consider in follow-on rounds to maintain QSBS tax exclusion?

Can I increase my QSBS?

QSBS 2015?

QSBS 1993?

QSBS 2009?

QSBS 2010?