Introduction
The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, just made one of the most powerful tax breaks for business owners and investors even better. Under Internal Revenue Code §1202 — also called the Qualified Small Business Stock (QSBS) exclusion — you can avoid paying taxes on a large portion of the profit when you sell qualifying stock in a small business. The recent changes could mean more money in your pocket and sooner than before.
What is QSBS in Simple Terms?
If you invest in or start a qualifying small business organized as a C corporation, and you meet certain requirements, the IRS lets you exclude part — or even all — of your profit when you sell your stock. Think of it as a reward for putting your money into a small business and helping it grow.
What Changed Under OBBBA?
- Higher Tax-Free Gains
- Before: Up to $10 million in tax-free profit (or 10× what you invested).
- Now: Up to $15 million (or 10× investment) — whichever is higher.
- Indexed for inflation starting in 2026.
- Shorter Holding Periods for Partial Exclusion
- 3 years → 50% tax-free gain
- 4 years → 75% tax-free gain
- 5 years → 100% tax-free gain (same as before)
- Larger Companies Can Qualify
- Asset limit at the time stock is issued: increased from $50M to $75M, indexed for inflation in 2026.
Example: How This Works in Real Life
Scenario:
You invest $1 million in a qualifying C corporation on August 1, 2025.
- By August 1, 2028 (3 years), your shares are worth $6 million. You sell.
- Tax-free gain: 50% of $5M gain = $2.5M excluded from tax.
- By August 1, 2029 (4 years), your shares are worth $8 million. You sell.
- Tax-free gain: 75% of $7M gain = $5.25M excluded.
- By August 1, 2030 (5 years), your shares are worth $12 million. You sell.
- Tax-free gain: 100% of $11M gain = $11M excluded.
Who Can Benefit?
- Startup founders with C corp shares.
- Angel investors and venture capitalists.
- High-net-worth individuals seeking tax-efficient investment strategies.
- Business owners planning an eventual exit.
Important Caveats
- Only C corporation stock qualifies — LLCs and S corps do not.
- Certain industries are excluded (law, health, accounting, finance, hospitality, etc.).
- You must receive the stock at original issuance, not buy it from another shareholder.
- The business must maintain QSBS eligibility during your holding period.
Tax Planning Opportunities
Our team at Velin & Associates, Inc. helps clients structure investments to qualify for QSBS, document compliance, and plan sales for maximum tax benefit. With OBBBA’s enhanced rules, the potential savings are larger than ever — but so are the compliance details.
💬 Ready to See If Your Stock Qualifies?
We’ll review your holdings, business structure, and timeline to determine if you can take advantage of the QSBS exclusion — and build a plan that maximizes your after-tax profit.
Velin & Associates, Inc.
8159 Santa Monica Blvd STE 198/200
West Hollywood, CA 90046
📞 323-902-1000
📧 dmitriy@losangelescpa.org
🌐 www.losangelescpa.org