Tax
QSBS (Qualified Small Business Stock, §1202)
A tax provision excluding up to $10M of capital gain on qualifying small business stock held 5+ years.
Section 1202 excludes 100% of capital gain (up to $10M or 10× basis, whichever is greater) on the sale of qualified small business stock held more than 5 years.
To qualify, the issuer must be a domestic C-corp, gross assets at and after issuance must be under $50M, and the corporation must conduct an active business in qualified industries (excluding professional services, financial services, hospitality).
Common pitfalls
- Converting an LLC to C-corp doesn't reset the QSBS clock — only stock issued post-conversion qualifies
- The 5-year holding period is strict — even one day short disqualifies
- Many states (including California) don't conform to §1202 — state tax still applies
Related service
Visit relevant service