This is Part 1 in a series I have written on the use of QSBS in estate planning. Part 2 focuses on using non-grantor trusts to further leverage QSBS in a future liquidity event.
Shares of a “qualified small business” (as defined by the Internal Revenue Code) issued after August 10, 1993 are referred to as “qualified small business stock” or “QSBS”.
Provided certain requirements are met, the sale of QSBS receives favorable tax treatment. This is particularly important when shares have increased significantly in value (or, “appreciated”) and might otherwise be subject to capital gains tax.
Continue reading to learn more about qualified small businesses and qualified small business stocks: the types, advantages, and disadvantages.
Under current rules, for QSBS acquired after 2010, 100% of the gain realized on the sale of the QSBS is excluded from taxation, up to the greater of $10 million or 10X the seller’s aggregate adjusted tax basis. This is referred to as the “Section 1202 gain exclusion”. This is significant because it can result in substantial income and tax-savings for sellers.