QUALIFIED SMALL BUSINESS STOCK - QSBS

Taxation of Qualified Small Business Stock: What You Need to Know

Qualified Small Business Stock (QSBS) is a type of stock issued by a qualified small business that meets specific criteria.  It is an attractive investment option for investors because of its potential tax benefits, including the possibility of deferring or completely eliminating capital gains taxes.

What is Qualified Small Business Stock?

Qualified Small Business Stock is a type of stock issued by a qualified small business that meets certain criteria. To qualify as QSBS, the stock must meet the following requirements:

· The stock must be issued by a domestic C corporation.

· The issuing corporation must have gross assets of no more than $50 million at the time of the stock issuance.

· The stock must be acquired by the investor at its original issue, either directly from the corporation or through an underwriter.

· The stock must be held for at least five years before being sold.

Tax Benefits of Qualified Small Business Stock

· Temporary 100% Exclusion of Gain - Under Section 1202 of the Internal Revenue Code, investors can exclude up to 100% of the gain from the sale of QSBS held for at least five years. This temporary exclusion was increased to 100% for QSBS acquired after September 27, 2010.

· Deferral of Gain - If an investor sells QSBS before the five-year holding period has expired, they may still be able to defer the gain by rolling over the proceeds into another QSBS investment.

Limitations and Restrictions

There are some limitations and restrictions to consider when investing in QSBS. Here are a few things to keep in mind:

· Eligibility Criteria - To be eligible, the corporation must be a C corporation and must have gross assets of $50 million or less at the time the stock is issued.

· Holding Period - Investors must hold the QSBS for at least five years to qualify for the tax benefits.

· Maximum Exclusion - The maximum exclusion for QSBS gains is limited to the greater of $10 million or 10 times the investor's adjusted basis in the stock.