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

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Written By
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Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

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