If you’re planning to sell your C-Corp shares in the next few years, there’s a section of the tax code that could save you millions: IRS Section 1202, also known as the Qualified Small Business Stock (QSBS) exclusion.
Here’s the quick breakdown 👇
What it is:
Section 1202 lets eligible shareholders exclude up to 100% of capital gains from federal taxes when selling qualifying stock.
Why it matters:
You can exclude up to $10 million in gains (or $15 million after July 4, 2025) — or up to 10× your original investment, whichever is greater — while avoiding as much as 23.8% in federal capital gains tax. On a $10 million gain, that could mean about $2.38 million in potential tax savings.
Who qualifies:
To qualify for the QSBS exclusion, you must own C-Corp stock acquired directly from the company when it had under $50 million in assets, hold it for at least five years, and ensure the business operates in a qualified (non-service) industry.
Timing matters:
The 5-year holding period is crucial, so it’s important to plan ahead. Stock acquired after September 27, 2010, qualifies for the full 100% exclusion under Section 1202. If your company converted from an LLC or S-Corp to a C-Corp, remember that the 5-year clock starts at the date of conversion.
Bottom line:
Section 1202 can be a game-changer for founders and early investors, but only if you plan ahead.
If you’re preparing for an exit, it’s worth reviewing your stock structure and acquisition dates now, not later.
I’m happy to chat through how QSBS could fit into your exit and personal tax strategy. Early planning makes all the difference.