There’s a way to sell your business and pay zero federal tax on the gain
Far too many owners miss out, costing them millions.
It’s called Qualified Small Business Stock, or QSBS, and whether you qualify is mostly decided years before you ever sell.
What It Takes
There are 3 key factors that determine your eligibility:
- Your company is a C-corp
- You’ve held your shares 5+ years
- Your company is not in an excluded industry
The first requirement is that the company has to be a domestic C-corp. LLCs and S-corps don’t qualify without converting.
Second, you need to hold your shares for 5 years to get the full exclusion, although there are partial exclusions for shorter holding periods starting at three years. Third, there are a few fields like law, accounting, consulting, and finance that are excluded.
The cap is generous: up to $15 million per company, or 10× what you originally put in, whichever is larger.
Why It Gets Missed
Early proactive tax planning can help owners evaluate potential QSBS eligibility before making decisions about business structure and ownership.
Some miss it because no one told them. But often it’s timing. Because of when the clock starts, qualifying is based on ownership actions that happen years before a sale.
Owners who would have qualified end up not qualifying, simply because no one looked early enough. Either way, the cost is the same: a tax bill in the millions that never had to exist.
Bottom Line
QSBS is worth a look even if you’re an LLC or S-corp today. With the benefit now starting at three years instead of five and more companies qualifying, the case for a planning ahead to hit the QSBS requirements is stronger than ever if a sale is a possibility. QSBS rewards the owners who plan ahead.
The best time to look at QSBS is years before you need it.
If selling your business is part of your long-term plans, consider QSBS eligibility alongside your broader exit and succession planning.
