Question 1

What is QSBS?

Accepted Answer

QSBS stands for Qualified Small Business Stock — shares in a qualifying C corporation eligible for a federal capital gains tax exclusion under Section 1202 of the Internal Revenue Code. Qualifying shareholders can exclude up to 100% of their gain from federal income tax, up to $10 million per taxpayer (or $15 million for stock issued after July 2025 under the OBBBA).

Question 2

How much can I exclude from taxes with QSBS?

Accepted Answer

Each qualifying taxpayer can exclude the greater of $10 million or 10 times their adjusted basis in the stock. For stock issued after July 5, 2025, the OBBBA increases the cap to $15 million. The exclusion applies per taxpayer, which is why stacking strategies through trusts can multiply the benefit.

Question 3

What is QSBS stacking?

Accepted Answer

QSBS stacking involves gifting shares to multiple non-grantor trusts, each qualifying as a separate taxpayer with its own exclusion. A founder with $50M in potential gains could create five exclusion buckets to shelter the entire amount.

Question 4

Does California conform to QSBS rules?

Accepted Answer

No. California taxes QSBS gains at the full state rate of 13.3%. A $10M gain excluded federally would still incur approximately $1.33M in California state tax. Jurisdiction strategy — such as establishing trusts in Nevada or South Dakota — is critical for California founders.

Question 5

When should I start QSBS planning?

Accepted Answer

At or shortly after incorporating as a C corporation. Lower valuations mean less lifetime exemption consumed when gifting shares, and the holding period clock starts earlier. Planning before a sale is on the horizon preserves the most flexibility.

Question 6

Why do I need a lawyer for QSBS planning?

Accepted Answer

QSBS planning sits at the intersection of corporate tax law, trust and estate law, gift tax, and state tax jurisdiction strategy. A misconfigured trust can invalidate the entire strategy. When the stakes are measured in millions, professional guidance is a rounding error in comparison.

QSBS Planning