What is Qualified small business stock?
Qualified small business stock (QSBS) is stock issued by domestic C Corporations that meets specific IRS requirements under Section 1202, potentially allowing shareholders to exclude up to $10 million or 10 times their stock basis in capital gains from federal taxation. To qualify, the issuing corporation must have gross assets of $50 million or less at the time of issuance, utilize at least 80% of its assets in active business operations, and avoid prohibited industries, such as personal services or real estate. Shareholders must acquire the stock directly from the corporation at the time of its original issuance and hold it for at least five years. This powerful tax incentive encourages investment in small businesses by providing substantial exclusion benefits for qualifying entrepreneurs and investors who can combine QSBS planning with Tax loss harvesting strategies for comprehensive tax optimization.
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