Qualified Small Business Stock
QSBS stands for Qualified Small Business Stock. The rules are intended to promote investments in small businesses and if the company uses the rules correctly, stockholders may be able to mediate capital gains taxes to fifty to a hundred percent.
What?? Uses, you heard me right. So if you’re a founder or an investor you should know about QSBS.
Here are the eight things you need to know and follow inorder to take advantage of QSBS rules:
Number one, the company needs to be taxed as a corporation a C- corp. Not LLC, not S – Corporation
Number two, the company’s assets must be valued less than 50 million dollars otherwise, it’s not a small business.
Number three, the stockholder taking advantage of QSBS benefits must be an individual or an entity taxed to partnership.
Number four, the shareholder must hold the stocks at least 5 years.
Number five, the stocks must’ve been purchased. No gifts.
Number six, a minimum of 80% of the company’s assets must be used for active trade and only 10% of it’s assets can be held in real estate.
Number seven, the company must be in a qualifying industry. No professional services, no hospitality and no other type of business where the main asset is the specialized skill of the employees.
Number eight, if the stock was issued before August 11th 1993, it will not be eligible for QSBS treatment and the date of issuance will determine how much of the capital gains can be excluded for tax purposes.