The Qualified Small Business Stock (QSBS) exclusion is a tax incentive under Section 1202 of the Internal Revenue Code that allows investors to exclude up to 100% of capital gains from the sale of eligible small business stock.
To qualify, the stock must be issued by a C corporation with gross assets of $50 million or less at issuance, and it must be held for more than five years. Additional requirements apply, such as the corporation engaging in an active trade or business and not operating in certain excluded industries.
When met, the QSBS exclusion can significantly reduce or eliminate capital gains taxes, making it a valuable planning tool for entrepreneurs and early-stage investors.
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