Tax Planning for Qualified Small Business Stock: Section 1202 Strategies for Investors and Businesses

This CLE/CPE program will provide business owners, investors, tax counsel and advisers a detailed analysis of available tax strategies for qualified small business stock (QSBS) to limit or minimize potential tax liability. The panel will discuss corporate and shareholder requirements and tax savings available for QSBS and offer structuring considerations to maximize QSBS benefits in a variety of situations.

Section 1202 allows a fully or partially tax-free sale of QSBS by certain taxpayers, in certain circumstances. The capital gain exclusion can create a significant benefit for investors and startups. Tax counsel must understand the rules and available structures to allow for QSBS treatment and potentially unlock millions in cash tax savings.

To qualify, certain corporate qualifications, shareholder eligibility rules, and holding period requirements must be met. The business must have no more than $50 million (or $75 million after July 4, 2025) in aggregate gross assets at the time the stock is issued, the company must be engaged in a qualified trade or business, and investors must hold the stock for five years (or three years for shares issued after July 4, 2025). Shareholders not holding the stock for five years could preserve QSBS benefits by rolling over the sales proceeds under Section 1045.

Under OBBBA, permitted gain exclusion caps for purposes of QSBS have increased. Tax counsel must understand the nuances involved in obtaining QSBS treatment for certain taxpayers.

Listen as our panel discusses the requirements of Section 1202, pitfalls to avoid, and planning opportunities available so shareholders achieve maximum tax savings.