How do you qualify for QSBS and save $15 million in taxes? It’s complicated.
First, you cannot qualify for QSBS as an individual. Your company must file the appropriate paperwork – analog or digital – with the IRS. Once the company receives approval, then the employees and shareholders get QSBS. Over the next three to five years there are many requirements to maintain QSBS status.
If you work at a company and you think there is a good reason to qualify for QSBS, speak with the appropriate person – founder, CEO, or your boss. Better yet, make the QSBS project yours. You’ll be very popular!
QSBS Requirements
First off, here are the high level requirements for QSBS:
- Company is a domestic C Corp
- Less than $50 million in assets (less than $75 million since July 5, 2025) when your shares were acquired
- Not a service business
As a leader on the QSBS project, it’s best to start right away. You must wait 3 to 5 years before you can reap the tax benefits, which will seem like an eternity. Don’t wait until next quarter or when a company sale is imminent.
Then the tax benefit can be as much as $10 million for shares acquired before July 5, 2025. For shares acquired after July 5, 2025, the benefit is as high as $15 million. The tax law changed in 2025 and there is a graduated tax benefit scale for time of ownership.
The tax benefits for ownership are:
- 50% tax deduction after three years – up to $7.5 million
- 75% tax deduction after four years – up to $11.25 million
- 100% tax deduction after five years – up to $15 million
The specifics can be found here.
Rolling Ownership to Another Entity
If you don’t meet the 3, 4, or 5 year holding period requirement you cannot roll the equity into another legal entity to meet the time obligation. QSBS is a very generous part of the tax code and the laws are particular.
A few years into the future, when your company has a merger or acquisition, you may preserve eligibility in some cases. For example, a tax-free share exchange could work. Outcomes can vary, and you will have to track share holding periods. It’s best to work with a professional in these scenarios.
Typically you can transfer QSBS through a gift, inheritance, divorce, or from a partnership to its partners and qualify for QSBS. Other types of transfer will typically result in the loss of QSBS status.
Unsure of Status
If you are unsure of your QSBS status, log into your share ownership portal and it should tell you if you qualify for QSBS. Most share ownership portals have this function.
You may think there is a good reason for QSBS at your business, speak with your founder or CEO about it. You can save a lot of money for everyone at the firm.
Finally, work with a professional so there is no doubt in your mind about qualifying for QSBS.