Post

QSBS: What every Startup Founder Should Know

How understanding QSBS now could save you millions in taxes when you sell your startup.

Most founders are so focused on building their companies that they don’t think about taxes—until it’s too late. But here’s the deal: understanding QSBS (Qualified Small Business Stock) now could save you millions later.

If you play it right, you could pay zero federal capital gains tax when you sell your startup. Yes, zero.

Here’s what you need to know.

What is QSBS?

QSBS is one of the biggest tax breaks for startup founders. It’s part of Section 1202 of the IRS Code, and it allows founders and early investors to eliminate federal capital gains tax on up to $10 million (or 10x their original investment, whichever is higher) when selling their shares.

I learned about QSBS, after I sold my business, don’t make the same mistake.

Do You Qualify?

To get the tax break, you need to check a few key boxes:

✅ Your company must be a C-Corp (LLCs and S-Corps don’t count).
✅ The shares must be issued directly from the company (no secondary sales).
✅ Your company’s assets must be under $50M.
✅ You must hold for at least five years before selling.

Miss one of these? No QSBS.

Why This Matters Now

Timing is everything. Here’s why you need to be thinking about QSBS right now:

  • Consider what type of company you’re building, an S-Corp can save on end-of-year taxes a C-corp may save on an exit event. There are pros and cons to each but if you’re planning to raise capital C-corp is your most likely path.
  • If you’re considering an exit in the next few years, check your timeline—selling too early could cost you millions, you need to have held for 5 years.
  • If you’re issuing new shares, work with your legal team to properly document QSBS eligibility.

This isn’t something you can fix after the fact. Plan ahead.
It could save you millions.

This post is licensed under CC BY 4.0 by the author.