Business owners planning an eventual exit have a powerful tax tool that just got significantly better. The One Big Beautiful Bill enhances Qualified Small Business Stock provisions with graduated exclusion percentages, increased gain limits, and higher asset thresholds (all now inflation-adjusted for the future). For entrepreneurs building businesses for sale or bringing in investors, understanding QSBS planning from the start could mean excluding millions in gain from federal taxation.
Graduated Gain Exclusion Percentages
One of the most significant changes is the modification of the exclusion of gain on sale. The benefit now phases in gradually, so you can still receive substantial benefits even if you sell earlier than the previous requirements.
Here's the new structure:
This graduated approach makes QSBS planning more flexible and accessible to more business owners. You're not facing an all-or-nothing proposition anymore.
Increased Gain Limits with Inflation Adjustment
The bill has increased the gain limit from $10 million (or 10 times the basis of stock sold) to $15 million (or 10 times basis).
Perhaps more importantly, this limit is now inflation-adjusted. They're starting to adjust things for inflation that they didn't use to adjust. This means we won't have to keep revisiting this provision year over year to get increases that match the current market. It will happen automatically.
Higher Asset Threshold for Qualification
To qualify for QSBS treatment, there has always been a requirement that assets must be under a certain threshold prior to the issuance of equity. The bill has increased this threshold from $50 million to $75 million.
This limit will also be inflation-adjusted going forward, making QSBS benefits accessible to larger businesses over time.
Why QSBS Matters
For business owners, QSBS can provide extraordinary tax benefits. The ability to exclude up to $15 million of gain (or 10 times your stock basis, whichever is greater) from federal taxation is one of the most powerful tax planning tools available.
The key requirements to qualify generally include:
Planning Is Critical
QSBS is definitely a hot topic that's not going away anytime soon. With these enhancements, it becomes an even more important consideration for:
The graduated exclusion percentages mean you don't have to commit to a full five-year hold to receive meaningful benefits, though the full exclusion still requires five years.
Don't Miss the Nuances
While I haven't gotten into all the nuances that previously applied (and still do apply) to QSBS, this is an area where details matter tremendously. Small mistakes in structuring or timing can disqualify otherwise eligible stock.
Work with your tax advisors to:
Take Action
If you're a business owner or are considering starting a business, QSBS planning should be part of your conversation from day one. The enhanced provisions in the One Big Beautiful Bill make this even more compelling.
The exclusion of up to $15 million in gain (or more if based on 10 times basis) can be life-changing for successful business owners. But you have to plan for it properly from the beginning.
Contact your tax advisor to discuss whether QSBS planning makes sense for your business and how to position yourself to take full advantage of these enhanced benefits. Don't leave millions in potential tax savings on the table by failing to plan ahead.
Contact Brown Edwards & Company to discuss whether QSBS planning makes sense for your business and how to position yourself to take full advantage of these enhanced benefits.