If you’ve ever worked at a startup or invested in one, you’ve probably heard someone casually drop the term QSBS. It stands for Qualified Small Business Stock, and while it sounds like something a corporate tax attorney might get excited about, it’s actually one of the most powerful tax breaks out there.
Especially for people who were early at a successful company.
The big question is, is QSBS worth it?
And to be honest, once you understand the rules and what’s at stake, it’s hard to argue that it isn’t.
Let’s walk through it together.
First, What Is QSBS?
QSBS is a section of the tax code that says, in the right situation, you don’t have to pay taxes on some or all of the profit you make when you sell shares of a qualified small business.
And we’re not talking about small savings here. Depending on how much your shares are worth, it could mean saving millions of dollars in taxes.
To qualify, the company has to be a domestic C corporation. It needs to be a real operating business, not just holding assets or acting like a hedge fund.
And when you acquired the shares, the company’s total gross assets had to be under $50 million. Plus, you need to hold onto the stock for at least five years.
Those are the basic rules. But like anything tax-related, there are exceptions, changes, and fine print. Which brings us to the latest updates.
Want to know more how QSBS work? Read about it in our blog HERE.
What Changed Recently?
On July 4th, 2025, the One Big Beautiful Bill Act was signed into law. It made some changes to QSBS that apply to shares acquired after that date. I’ve been calling it OB3A for short, because the full name is a mouthful and no one seems to have settled on an official abbreviation yet.
One of the biggest updates is that the asset threshold increased from $50 million to $75 million. So now, companies can be a bit larger at the time shares are issued and still qualify.
The other change has to do with how long you have to hold the shares. Previously, you had to hold for five full years to get any benefit. That’s still true if you want the full exclusion, but now there are partial benefits available if you sell earlier.
If you hold the shares for at least three years but not quite four, you can exclude 50 percent of the gain. If you hold for four but not quite five, you get a 75 percent exclusion. And once you hit five years, it’s the full 100 percent exclusion, just like before.
So it’s no longer all or nothing. These updates make it a bit more flexible if you want or need to sell before that five-year mark.
What About the $10 Million Limit?
That part hasn’t changed yet. The exclusion amount is still either $10 million or ten times your investment basis, whichever is greater. That rule will stick around through at least 2027.
Starting in 2027, though, the cap increases to $15 million, but only for shares acquired after July 4, 2025. Which makes sense when you think about it. If you bought shares on July 5, 2025, and you have to wait three years to sell for the lowest exclusion tier, the earliest you’d benefit from that increase would be 2028.
So nothing changes for people selling stock today, but it’s something to keep in mind going forward.
Let’s Talk About the Actual Savings
All these rules and percentages are fine, but let’s talk about what this looks like in real life. I ran through a pretty straightforward example to see what QSBS could actually save in taxes.
Let’s say you acquired shares on January 1, 2020, and sold them on June 15, 2025. That’s just under five and a half years, so you’d be eligible for the full 100 percent QSBS exclusion if all the other qualifications were met.
Let’s say your basis (the amount you originally paid for the shares) was a hundred bucks. And when you sold, the total proceeds were $25.5 million.
Without QSBS, your entire gain is taxable. That’s basically the $25.5 million, minus the hundred dollars of basis, which gets you to a gain of $25,499,900.
Assuming a combined tax rate of 23 percent, which covers the long-term capital gains rate plus the net investment income tax, that’s a tax bill of about $5.865 million.
Now let’s apply QSBS. You get to exclude $10 million of that gain, so now only $15,499,900 is taxable. At the same 23 percent tax rate, your tax bill drops to around $3.565 million.
That’s a difference of $2.3 million.
What Would You Do With $2.3 Million?
That’s really the core of the question, right? Is QSBS worth it?
Well, how much is $2.3 million worth to you?
It could mean paying off your house. Or buying a second one. Maybe it covers college tuition for your kids. Or allows you to take a sabbatical and think about your next move. Maybe it gives you the startup capital to fund your own company. Or set up a trust. Or give back to your community in a meaningful way.
This isn’t money you lost in a down market or spent on a bad investment. It’s money you’re giving to the IRS just because you didn’t take advantage of QSBS.
And that’s the part that always gets me. People work so hard to build something valuable, but when it’s time to sell, they miss this piece and end up paying millions more in taxes than they needed to.
So, Is It Worth It?
From where I’m sitting, it absolutely is. If your stock qualifies, and if you’re planning to sell, this is something you should be talking about now, not after the deal is done.
It might not be the most exciting cocktail party topic, but it could save you more than two million dollars. And to me, that’s worth a little extra planning.
If you want help figuring out if you qualify or if you just want to run the numbers for your own situation, that’s exactly what we do.
At KB Financial Advisors, we’re happy to take a look and help you make the most of your stock gains.
Just reach out. It could be the most profitable conversation you have this year.
You can use our calendar here.
Until next time!
