What founders and investors need to know about the new QSBS rules
Congress just passed a major bill that enhances the benefits of Qualified Small Business Stock (QSBS), a powerful tax break for founders planning an exit. The changes make the QSBS tax exclusion bigger, better, and easier to claim.
For business owners, this is a signal to pay attention. The new rules could significantly change the math on how—and when—you sell your company. Here’s what you need to know.
What’s in the new law?
The legislation makes several key changes for QSBS-eligible stock.
- Shorter holding period: The time you’re required to hold stock to get a tax break has been reduced from five years to just three.
- Bigger tax break: The tiered gain exclusion is a new feature. You can now exclude 50% of your gain if you hold the stock for three years, 75% for four years, and 100% for five years or more.
Higher limits: More businesses can now qualify, as the corporate gross assets limit has been raised from $50 million to $75 million. The maximum gain an individual can exclude has also been increased from $10 million to $15 million.
Why it matters for your business
These changes make the C-Corporation structure a more powerful strategic tool than ever. The shorter holding period gives you more flexibility and allows you to access tax-free returns much faster. The higher asset limit means a new wave of scaling companies can now qualify for this benefit.
If your goal is to grow your business and eventually sell, these new rules make a compelling case for structuring as a C-Corp and developing a QSBS strategy from day one.
How to prepare for a tax-free exit
To take advantage of this new framework, proactive planning is critical.
- ✅ Check your business structure. The QSBS benefit is only for C-Corporations. If you’re currently an S-Corp or a partnership, it’s time to evaluate a conversion.
- ✅ Confirm you qualify. Your business must operate in a qualifying industry and meet the new $75 million gross asset test. It’s also important to remember that some states, like California and New Jersey, do not conform to the federal QSBS exclusion.
- ✅ Document everything. The IRS requires you to prove your eligibility. Maintaining thorough records, including a formal business valuation, is essential to protect yourself in an audit.
Want to make sure you’re set up to take full advantage of these new rules? Arvo Advisors helps business owners navigate these changes to maximize their exit. Let’s talk.
