Day 4: Using the QSBS Exclusion to Eliminate Taxes Entirely

5 Tax Issues to Consider Before Selling Your Business to Reduce the Tax Burden

Day 4: Using the QSBS Exclusion to Eliminate Taxes Entirely

What If You Could Sell Your Business Tax-Free?

If you’re selling a C-Corp that qualifies as Qualified Small Business Stock (QSBS), you might be able to exclude up to 100% of your capital gains taxes (IRC § 1202).

🚀 How QSBS Works:

✅ If you held C-Corp shares for 5+ years, you may be able to exclude up to $10 million in gains tax-free.

✅ Applies to founders, early employees, and investors.

✅ The exclusion applies to capital gains, not ordinary income.

📌 Cited in IRC: QSBS is covered under IRC § 1202.

Example: How a Business Owner Saved $2M+ in Taxes

• Karen started a software company (C-Corp) in 2015 and sold it in 2024 for $12 million.

• Her first $10 million in gains is 100% tax-free under QSBS.

• She only owes capital gains tax on the remaining $2 million.

• Result? She saves $2 million+ in taxes.

🚨 QSBS Rules You MUST Know:

1️⃣ Company must be a C-Corp (LLCs and S-Corps don’t qualify).

2️⃣ You must have held shares for 5+ years before selling.

3️⃣ Company must have had <$50 million in assets when shares were issued.

🚀 Pro Tip: If your business doesn’t meet QSBS criteria, consider converting to a C-Corp years before a planned sale to become eligible.

Tomorrow’s Topic: Charitable Planning – How to Reduce Taxes by Donating Stock

Want to reduce your tax bill while supporting charity? Tomorrow, we’ll discuss how to donate shares tax-efficiently and claim big deductions.