Qualified Small Business Stock (QSBS)
Maximize Your Tax Savings with IRC Section 1202
Qualified Small Business Stock (QSBS) refers to a powerful tax incentive under Section 1202 of the Internal Revenue Code. This provision allows eligible investors to exclude up to 100% of capital gains on the sale of stock in a qualified small business — potentially saving millions in taxes.
Strand Tax & Accounting: Your QSBS Compliance Partner
At Strand Tax & Accounting Services, we go beyond standard tax filings to support your QSBS strategy:
-
Full bookkeeping and tax compliance tailored for founders and investors
-
QSBS attestation letters prepared at the time of investment or sale
-
Guidance on maintaining eligibility throughout the holding period
-
Proactive structuring advice to maximize your tax savings
What You Could Save
Capital Gains Tax Rates (Federal & Florida Residents)
| Tax Type | Rate |
|---|---|
| Long-Term Capital Gains | 20.0% |
| Net Investment Income Tax (NIIT) | 3.8% |
| Total Federal Rate | 23.8% |
With QSBS, you may be able to exclude this entire 23.8% federal tax on gains.
Key QSBS Benefits
-
Up to 100% federal capital gains tax exclusion
-
Exclusion applies to the greater of:
-
$10 million per taxpayer, or
-
10 times your investment basis
-
QSBS Qualification Criteria
Eligible Corporation
To qualify, the issuing company must:
-
Be a U.S. C corporation
-
Have gross assets of $50 million or less before and immediately after stock issuance
-
Operate a qualified trade or business
Non-Qualified Industries
The following types of businesses do not qualify:
-
Financial services (e.g., banking, insurance, investing)
-
Professional services (e.g., law, accounting, consulting)
-
Hospitality (e.g., hotels, restaurants)
-
Natural resource extraction (e.g., mining, oil & gas)
-
Farming and agriculture
-
Real estate
Qualified Stock Acquisition
The stock must:
-
Be acquired directly from the company in exchange for money, property, or services
-
Not be purchased on the secondary market
-
Be issued after August 10, 1993
Stock Holding Period
-
Must be held for more than five years to qualify for the capital gains exclusion
Active Business Requirement
During most of the investor’s holding period:
-
At least 80% of the company’s assets must be used in an active business
-
No more than 10% of assets can be held in non-business real estate
-
No more than 10% can be in portfolio securities
Section 1045 Rollover Provision
If QSBS is sold before the five-year holding period, you may defer capital gains by:
-
Reinvesting proceeds into another QSBS within 60 days
-
Retaining the original holding period and basis for the new stock
This provision helps preserve QSBS treatment even with early exits.
QSBS Limitations and Documentation
| Topic | Details |
|---|---|
| Per-Issuer Cap | $10 million or 10x basis cap applies per corporation (not per investor) |
| Required Documentation | Maintain records of stock acquisition, company asset values, and business activity |
| Risk of Disqualification | If the corporation fails to meet eligibility during the holding period, QSBS status may be lost |
Our QSBS Services
Strand Tax & Accounting provides:
-
QSBS eligibility reviews
-
IRS tax form preparation (Form 8949, Schedule D, etc.)
-
Company attestation letters
-
Section 1045 rollover planning
-
Guidance through mergers, conversions, or reorganizations
Contact Us
Whether you’re an investor, founder, or advisor, we help you navigate QSBS rules and optimize your outcome.