Generally, to qualify for a QSBS industry a company would need to be developing or producing a product for businesses or consumers. Service business models do not qualify for QSBS. An example of a qualifying QSBS industry would be a company designing/developing a frontier tech product, whether it is software or hardware. The frontier tech could be a new SaaS platform that writes legal documents or it could be a company creating an AI robot that changes automobile tires ultra fast. Below are the list of companies that do not qualify under section 1202.
- Any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees
- Any banking, insurance, financing, leasing, investing, or similar business
- Any farming business (including the business of raising or harvesting trees)
- Any business involving the production or extraction of products of a character with respect to which a deduction is allowable under section 613 or 613A
- Any business of operating a hotel, motel, restaurant, or similar business
Below are companies that represent qualifying industries. All the companies have been venture backed and would have saved investors millions if they elected the section 1202 QSBS tax exclusion.