Individuals and “pass-through” entities can benefit from QSBS tax savings, but corporations investing in otherwise QSBS eligible entities cannot.
A pass-through or flow-through entity is a legal structure that does not pay income taxes at the business level but passes earnings to its owners to be taxed at the individual’s tax rate. Pass-through entities still file taxes but all tax effects are passed to the owner with a K-1 statement. Unlike C-Corporations, pass-through entities do avoid double taxation.
The following types of pass-through entity legal structures are eligible to benefit from QSBS tax savings, as per IRC Section 1202(g)(4):
- S Corporation
- Regulated Investment Companies, and
- Common Trust Funds
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.