Qualified Small Business Stock (QSBS) – How to Take Advantage

What Is Qualified Small Business Stock (QSBS)?

Qualified small business stock (QSBS) is a designation given to certain stocks of small businesses that qualify for special tax treatment.

When you sell or exchange QSBS, you may be able to exclude all or part of the gain from your taxable income.

To qualify for QSBS status, the stock must meet the following criteria:

  • The stock must be issued by a qualified small business. To be considered a qualified small business, the company must be a C corporation with less than $50 million in gross assets at the time of the stock issuance.
  • The stock must be acquired at original issue (i.e., it cannot be acquired on the secondary market).
  • The stock must be held for more than five years.

If you meet all of the above criteria, you may be eligible for the QSBS exclusion.

This exclusion allows you to exclude up to $10 million (or 10 times your tax basis in the stock, whichever is less) of gain from the sale or exchange of QSBS.

This can be a significant tax savings, as long-term capital gains are currently taxed at a maximum rate of 20 percent.

Final Word

Qualified small business stock is a great way to invest in small businesses and receive favorable tax treatment on your investment.

If you think you may have QSBS, be sure to speak with your financial advisor to discuss the best way to take advantage of this tax break.

Qualified Small Business Stock (QSBS) Explained