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Everything that you need to know about QSBS

QSBS stands for “Qualified Small Business Stock” and is regulated by the Internal Revenue Service (IRS) under code Section 1202, offering tax benefits to accredited investors, investment funds, employees, and founders. QSBS is a tax benefit 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 if the company qualifies as a Section 1202 qualified small business. 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. Do limited partner 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?

What is Section 1045 QSBS?

Can I Reinvest My QSBS Gains Into Multiple Section 1045 Rollovers?

What is the section 1045 QSBS 60 day limit?

Can I Defer Gains Over the Section 1202 Limit With Section 1045 Rollover?

Do Convertible Notes Qualify for Section 1045 Rollover?

How long do I have to hold my QSBS to use section 1045?

Do I Have to Reinvest My Full QSBS Gain to Elect the Section 1045 Rollover?

Do Section 1045 Rollovers Have to Follow Section 1202 QSBS Requirements?

How do I apply for Section 1045?

QSBS tax treatment for general partners

Can a partnership own QSBS?

Do I Need To Apply for QSBS?

Can QSBS be Exchanged for Other Stock Under Section 351?

What is a QSBS Tax-Free Reorganization Under Section 368?

Does My QSBS Still Qualify for Section 1202 After it Converts?

Do Startups With No Revenue Qualify for Section 1202 QSBS?

Can Partnerships Elect Section 1045 QSBS?

What Is a Tiered Partnership?

How Much Is the Section 1202 QSBS Tax Exclusion?

Can Section 1202 QSBS Be Transferred to a Trust?

Does the Gain on Property in Exchange for QSBS Qualify for Section 1202?

Are Tax-Free Transaction Gains Eligible for Section 1045 QSBS Rollover?

Could A LLC Taxed as C Corporation Qualify for QSBS?

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

Does All of the Business’s Issued Stock Have to Qualify for QSBS?

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

Is QSBS excluded from Net Investment Income Tax?

Should I exercise my QSBS stock options now or wait closer to the expiration date?

What documentation do I have to provide for QSBS?

Can Employees Receive QSBS as Compensation?

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

Is my QSBS exclusion safe in a divorce?

How do I report a Section 1045 QSBS rollover on my taxes?

How do I report a Section 1202 QSBS gain on my taxes from a Section 1045 rollover?

Can I transfer my QSBS to a partnership?

What to consider in follow-on investments to maintain the QSBS tax exclusion

How much is “substantially all” when referring to the QSBS active test?