Breaking the Code: Qualified Small Business Stock
By: Jeff Krueger, CPA | Partner
Proposed Changes Could Expand QSBS Tax Benefits
If you’ve invested in—or are considering investing in—Qualified Small Business Stock (QSBS), a new proposal from the Senate Finance Committee could make the potential tax benefits even more attractive.
Here’s what you need to know:
Key Proposed Changes to QSBS (Section 1202)
1. Tiered Capital Gain Exclusions Based on Holding Period:
3 years → 50% exclusion
4 years → 75% exclusion
5 years → 100% exclusion (unchanged)
What this means: This allows some tax savings even if you sell before year five.
2. Increased Gain Exclusion Cap:
The $10M lifetime cap would rise to $15M per taxpayer for newly issued stock.
Starting in 2026, the cap would be indexed to inflation.
What this means: Investors could exclude more gains tax-free, particularly when making significant investments in multiple qualified companies
3. Higher Company Size Limit:
The company asset limit for QSBS eligibility would increase from $50M to $75M, also indexed to inflation in future years.
What this means: A broader group of growth-stage companies could now qualify—potentially increasing your investment opportunities and/or time to exercise early employee stock options.
What You Can Do Now:
Review your current QSBS holdings and holding periods.
Plan for potential exits with the new tiered rules in mind.
If raising or investing, confirm company qualification under updated thresholds.
If you currently hold QSBS or are considering investing in a qualified small business, now is the perfect time to review your strategy. We’re here to help you stay ahead of these changes and make informed, tax-efficient decisions.
If you'd like to explore how this may affect your planning, let’s set up a time to talk!
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.