Tax-Advantaged Qualified Small Business Stock

If you own stock that meets the qualified small business stock (QSBS) rules, up to 100% of the gain on the sale of the shares is tax-free.

picture of small office space for qualified small business stock story
(Image credit: Getty Images)

Many federal tax laws were enacted by Congress to help encourage taxpayers to take certain actions, such as donating to charity (to ease the burden of government) or buying a house (to help the real estate market). Such is the case with the tax break for qualified small business stock, or QSBS. Congress wanted to encourage people to create and invest in start-up businesses. Starting a small business, and investing in such a start-up, can be a risky proposition. Many start-ups don’t succeed. 

But if you happen to have the good fortune to invest in one that makes it big — think certain technology start-ups — and your ownership interest in the business satisfies all the rules for QSBS, then you’ve hit the tax jackpot. Up to $10 million of your gain when you sell the stock is excluded from your income for federal income tax purposes. 

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Joy Taylor
Editor, The Kiplinger Tax Letter

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.