With all the buzz around QSBS, you may be wondering, does my company even qualify? And if so, what are the benefits to shareholders and employees? Does my personal stock qualify? What are the benefits if they do? We’ve got you.
First off, let’s talk qualified small businesses. In order to fit the bill, generally your company needs to:
- Have assets of less than $50 million, before and after issuance of stock
- Be an active C-corp in the United States
- Not provide prohibited services – these range from health, law, engineering, architecture, and accounting to performing arts and financial services. Click here to see a full list
To check for yourself if your business qualifies, click here. The QSBS exclusion is applicable to individual shareholders, so while the company needs to meet specific criteria, shares also need to qualify - with the main requirement being that the stock was obtained directly from the company (i.e. originally issued) in exchange for cash, property or for services. At its core, QSBS drives innovation and can be a useful tool for startups or other agile companies to raise capital, compensate and retain employees... a win-win for business, its partners, and employees.
The flip side of qualifying is, of course, investing. How do you get started and what are the tax benefits associated with investing in QSBS? As long as you are an individual, trust, or pass-through entity able to satisfy a minimum 5-year hold on investment in originally issued stock, you’re generally good to go. It’s that simple. And now that you are:
- You may exclude up to 100% of federal capital gains up to the greater of $10 million or 10x the adjusted basis and potentially more savings at the state level
- There are no minimum or maximum investments
- It’s possible to rollover QSBS proceeds, deferring capital gains taxes on the sale of QSBS if proceeds from the sale are reinvested in another eligible QSBS within a specific time frame
Whether your company is a qualified business, or you choose to invest personally in QSBS, this is one exemption you won’t want to miss out on. So, spend a few minutes to see if you qualify. You won’t be sorry.
Interested in learning more? Contact us today to explore your options.
Contributors:
Jonathan Fish
Co-Founder & CEO
Josh Fagan
Chief Marketing Officer
Seedbrite Ventures