If you thought QSBS (Qualified Small Business Stock) was good before, you're about to be blown away.

‍

The recently signed "One Big Beautiful Bill Act" just supercharged one of the most powerful tax benefits available to startup folks — and the changes are honestly pretty incredible.

‍

Let's break down what just happened and why it matters for anyone holding (or thinking about getting) startup equity.

The Quick Refresher: What Is QSBS Again?

QSBS is that magical tax rule that can let you completely avoid paying capital gains taxes when you sell qualifying startup stock. We're talking up to 100% tax-free gains on potentially millions of dollars.

‍

The basics haven't changed:

• Your company had to qualify when you got your shares
• You need to hold the stock for a certain period
• There are caps on how much you can exclude

But here's where things get exciting — those "certain periods" and caps just got a lot more favorable.

‍

The Big Changes: What's New Under the OBBBA

1. The Holding Period Just Got Way More Flexible

Old Rule: You had to hold your QSBS for exactly 5+ years to get any tax benefit. Miss that mark by even a day? You got nothing.

New Rule (for stock issued after July 4, 2025): Now there's a sliding scale:

• 3+ years: 50% of your gains are tax-free
• 4+ years: 75% of your gains are tax-free
• 5+ years: 100% of your gains are tax-free (like before)

‍

Why this matters: Let's say you're a founder with an exit opportunity after 3.5 years. Under the old rules, you'd pay full capital gains tax. Now? You'd only pay tax on half your gains.

‍

2. The Caps Got Bigger

The per-company exclusion limit jumped from $10 million to $15 million — and it's now indexed for inflation.

‍

Real-world impact: If you invested $100K and your startup becomes worth $16M, you used to hit the cap at $10M in excludable gains. Now you can exclude $15M, potentially saving you over $1 million in taxes.

‍

3. Companies Can Grow Bigger and Still Qualify

The asset threshold for qualifying companies increased from $50 million to $75 million in gross assets.

‍

What this means: More companies can issue new QSBS even as they grow, and existing companies have more runway before they lose qualification for new equity grants.

‍

The Catch: When Do These Rules Apply?

Here's the important part: These enhanced benefits only apply to QSBS issued after July 4, 2025.

‍

If you already have QSBS from before that date, you're still under the old rules. But if your company issues new shares, grants new options, or if you exercise options after July 4, 2025, those shares could qualify for the new, better treatment.

‍

Strategic Planning Opportunities

For Founders:

• Exit timing flexibility: You can now consider earlier exits while still getting substantial tax benefits
• New equity issuances: If your company is under $75M in assets, you might want to consider issuing fresh QSBS to take advantage of the new rules

‍

For Employees:

• Exercise timing: If you have unexercised options and your company still qualifies, exercising after July 4, 2025 could put you under the better rules
• 3(b) elections: More critical than ever to file these on time to start your holding period clock

‍

For Investors:

• Deal structuring: New investments can benefit from the shorter holding periods and higher caps
• Portfolio planning: Consider which investments might benefit from the 3-4 year partial exclusions

‍

Important Gotchas to Watch

Mixed batches: If you have QSBS from both before and after July 4, 2025, you'll need to track them separately — they follow different rules.

‍

Company qualification: Remember, the company still needs to qualify at the time the shares are issued. If your startup has grown past $75M in assets or changed its business model, new shares might not qualify at all.

‍

State taxes: This is still a federal benefit. Make sure you understand how your state treats QSBS gains.

‍

What to Do Right Now

1. Check your current QSBS status — Do you know which of your shares qualify and when you received them?
2. Review upcoming decisions — Any unexercised options? Exit opportunities on the horizon? The timing just became a lot more nuanced.
3. Get documentation — Make sure your company can provide QSBS qualification letters and that you have records of all your equity grants and exercise dates.
4. Plan for the new rules — If you're involved in a company that might issue new equity, understand how the enhanced QSBS rules could benefit you.

‍

The Bottom Line

QSBS was already one of the most generous tax benefits out there for startup folks. These changes make it even more powerful — especially for anyone who might not want to (or be able to) hold their shares for the full 5 years.

‍

The key is understanding which rules apply to which shares and planning accordingly. With the right strategy, these changes could save you hundreds of thousands (or even millions) in taxes.

‍

—

‍

Have questions about how these QSBS changes affect your specific situation? The rules can get complex quickly, especially with mixed holdings from different time periods. Consider talking to a tax advisor who specializes in startup equity before making any major decisions.

‍