Like any investment, investors should perform proper diligence on investments in Qualified Small Business Stock. Most early stage businesses do not survive past the first couple of years, and while capital losses may qualify for Section 1244 deductions, the most ideal scenario is to have a capital gain that qualifies for the Section 1202 QSBS Exemption.
Besides knowing entrepreneurs directly, one of the best ways to invest in QSBS may be through Venture Capital funds, however, keep in mind that not all VC fund investments are likely to qualify as QSBS.
If you are looking to rollover QSBS gains into other QSBS as per Section 1045, keep in mind that the rollover needs to take place within 60 days of your gain, so to the extent possible it is best to plan ahead.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.