Been hearing a lot about ‘BIG beautiful Bills’ as of late?
Frankly, who hasn’t? However, despite the fact that a few headline topics within the BBB have received a lot of attention, most folks I’ve spoken with really haven’t dug into everything packed into this overstuffed sausage. As an investor, one specific acronym stuck out to me, and it has the potential to impact startup founders, employees and investors in a BIG way. That acronym is QSBS or Qualified Small Business Stock – and the tax treatment that comes with it.
Before I get too far into how the BBB affects QSBS going forward, a brief primer on what exactly “it” is sounds like a good place to start. QSBS is a special tax break in the U.S. that saves qualified stockholders money when a business sells. Those businesses in question must qualify as a U.S. small business (under $50M in assets at the time of sale), be a C-corporation, and be in an approved industry (like tech or manufacturing, but not things like real estate or consulting). So, essentially right down the middle for what we, at In Revenue, target for investment. On top of the above requirements related to the composition of the sold organization, you need to hold the stock for at least 5 years before selling it. However, if the liquidity event meets all of these requirements, the equity holder avoids paying federal capital gains tax on up to $10M in realized profit.
At least, those were the requirements prior to the BBB’s passage.
Now, for stock issued after July 4, 2025, QSBS includes a number of modifications which, IMO, make startups even more attractive to investors and stock holders.
First, the program now includes a tiered exclusion: 50% gain exclusion for QSBS held for at least three years, 75% for four years, and 100% for five years, reducing the previous five-year holding requirement.
Next, the exclusion cap increases from $10M to $15M, indexed for inflation from 2027, enabling investors to shield more gains from taxation.
Finally, the gross asset threshold for QSBS eligibility rises from $50 million to $75 million, also inflation-adjusted, expanding the pool of qualifying startups, particularly in capital-intensive sectors like SaaS, AI, and technology.
These changes enhance liquidity, broaden eligibility, and increase tax savings, making startups even more appealing as an asset class. If you have questions that go deeper than what I can in our weekly newsletter, I’m happy to expand on our opinions regarding these changes offline. However, this is a good time to wave the disclaimer that I am not a CPA, and no longer play one on television – so consulting your tax pro is always the best course of action. What I can say with confidence is that, from the investor perspective, the program exemptions are more aggressive than they were previously. I guess that goes for a lot of things in the world right now.
