If you enjoy investing in small businesses/startups and saving money on taxes then you should learn more about the QSBS exemption, creating tax-free wealth. The couple in the above picture just found out they can save up to 100% on capital gains tax (…they didn’t really it’s just a random picture). So what is this QSBS exemption?
QSBS stands for qualified small business stock and is under Section 1202 of the tax code. It is an incentive to attract capital to small businesses/startups with the goal of stimulating economic development. The QSBS exemption is up to a 100% tax exclusion on capital gains received from the sale of QSBS. This exclusion covers up to $10M or 10x the investment gain. The potential of the QSBS exemption is millions of dollars in tax savings. Below are a few caveats to consider when determining if your stock or potential stock qualifies for the QSBS exemption:
- Entity structures that qualify for QSBS
- Size limit of a QSBS small business
- Qualifying QSBS industries
- Active business requirements
- Stock purchasing guidelines
- QSBS holding period
- QSBS gains excludable
- Reporting QSBS on your taxes
- QSBS exclusion for state taxes
- QSBS gain rollover
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.