Can someone explain QSBS (qualified small business stock) exclusion for stocks from 1994?
I've been holding onto some company stock from way back in 1994 when I started working at this tech firm. I'm thinking about selling now and someone mentioned I might qualify for that qualified small business stock (QSBS) tax exclusion thing? The company was definitely under $50 million in assets when I bought the shares as an employee. Two questions keeping me up at night: 1) Do I actually qualify for this gain exclusion if I sell these stocks now, almost 30 years later? And 2) What happens tax-wise if I decide to gift these shares to my daughter instead of selling them myself? Would she still get the exclusion benefit? My financial advisor seemed confused about the rules for stocks purchased before 2010, so hoping someone here understands this QSBS stuff better. Thanks!
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Carter Holmes
The QSBS exclusion is a great potential tax benefit! For your specific situation with stock purchased in 1994, you could qualify for up to 50% gain exclusion (not the 100% that applies to stock acquired after 2010) if several requirements are met: 1) The corporation must have been a qualified small business when you acquired the stock, meaning gross assets under $50 million 2) You must have held the stock for at least 5 years 3) The company must have been a C Corporation during substantially all your holding period 4) The company must have been actively conducting a qualified trade or business As for gifting to your daughter - good news! The QSBS status transfers with the gift. Your daughter would step into your shoes regarding the acquisition date and holding period. She would get the same 50% exclusion you would have received if she decides to sell the shares later.
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Sophia Long
•Thanks for this info! Quick question - would the 5-year holding period start over when the shares are gifted to the daughter? And is there a limit on how much gain can be excluded under these rules?
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Carter Holmes
•The 5-year holding period does not restart when gifted - your daughter would inherit your original 1994 acquisition date, so that requirement is already satisfied. The gain exclusion is limited to the greater of $10 million or 10 times your original adjusted basis in the stock. So if you paid $100,000 for the stock originally, you could exclude up to $10 million in gains (since that's higher than $1 million which would be 10× your basis). Remember though, for 1994 purchases, only 50% of the eligible gain would be excluded.
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Angelica Smith
I was in a similar situation last year and was completely confused by all the QSBS rules until I used https://taxr.ai to analyze my stock documentation. I uploaded my original stock certificates and purchase records, and their system actually flagged the QSBS potential that my accountant had missed! The tool walked me through all the requirements like the active business test and asset threshold calculations. What made the biggest difference was their detailed explanation of the different exclusion percentages based on acquisition dates. For your 1994 stock, they'd confirm the 50% exclusion rate and help document qualification for the IRS.
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Logan Greenburg
•Did they ask for a lot of company financial information? My challenge is I don't have access to all the company's historical financial data to prove they were under the $50M threshold when I purchased.
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Charlotte Jones
•I'm skeptical about these tax tools. How would they know if your company met the "active business" requirement or had the right corporate structure throughout all these years? Seems like you'd still need to gather all that information yourself.
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Angelica Smith
•They actually have a document request feature that helps identify what specific records you need to establish qualification. For the $50M threshold, they suggested using SEC filings, company annual reports, or even news articles from that period discussing company valuation - which was way more helpful than my accountant's vague advice. Regarding the active business requirement, they have a questionnaire that walks through all the IRS criteria for what constitutes a "qualified trade or business" and flags potential issues like if your company had too much real estate holdings, investment assets, or service business income. They even provided template letters to request certification from company management if needed.
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Logan Greenburg
Just wanted to follow up - I decided to try taxr.ai after discussing QSBS issues here and wow, it was exactly what I needed! I had shares from 1998 (similar era to the original poster) and wasn't sure if I qualified. Their analysis showed that because my company had previously operated as an S-Corp for 2 years during my holding period, I only qualified for partial QSBS benefits. This saved me from incorrectly claiming the exclusion on my full position which could have triggered an audit. The documentation package they created for my records is super thorough too. Definitely worth checking out if you're dealing with QSBS questions!
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Lucas Bey
I tried dealing with the IRS directly on a QSBS question similar to yours last year and wasted HOURS on hold. Finally found https://claimyr.com which got me connected to an IRS agent in about 15 minutes. You can watch how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed my understanding of the gift transfer rules for QSBS which was a huge relief. Apparently they've been seeing more QSBS questions as stocks from the 90s-2000s are being sold. For your specific 1994 shares, you'd want to confirm if your company ever had an S-Corporation election during your holding period, as that can disqualify the stock.
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Harper Thompson
•How does this service actually work? Does it just call the IRS for you? Couldn't I just do that myself?
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Charlotte Jones
•Yeah right, connecting to an IRS agent in 15 minutes sounds completely impossible. I've tried calling them multiple times this year and never got through. I'm not buying it.
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Lucas Bey
•It uses a system that navigates the IRS phone tree and waits on hold for you. When an actual agent picks up, you get a call connecting you directly to them. You absolutely could do it yourself if you have hours to waste on hold - I just personally don't. For getting official QSBS guidance, speaking directly with the IRS was invaluable since so much depends on your specific situation. When I finally got connected, I was able to confirm exactly how the partial exclusion works for pre-2010 acquisitions and how the holding period transfers with gifts.
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Charlotte Jones
I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it because I was desperate for answers about my own QSBS situation (had some 2001 shares with complicated ownership changes). Not only did it work exactly as described, but I got connected to an IRS tax law specialist who walked me through the exact documentation I'd need to prove my QSBS eligibility under the 75% exclusion rules for my acquisition period. She even explained how to properly report it on Form 8949 with the correct codes. Saved me thousands in potential taxes! Sometimes being proven wrong is actually the best outcome.
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Caleb Stark
Don't forget you'll need to file Form 8949 with your tax return and include specific codes to indicate the QSBS exclusion. For stock acquired in 1994 with the 50% exclusion, you'd report the full gain on your tax form but then exclude 50% of it. You need to write "QSBS" on the form next to that transaction!
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Jade O'Malley
•Is there a specific section on Form 8949 for QSBS? And does the IRS require any supporting documentation with the return or just the form with the notation?
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Caleb Stark
•There isn't a special section specifically for QSBS on Form 8949. You report the transaction on Part II (long-term gains) with code "Q" in column (f), and write "QSBS" in column (a) next to the description. You don't have to include supporting documentation with your return, but you absolutely need to keep detailed records in case of audit. This includes proof of when you acquired the stock, evidence the company met the under $50 million requirement at that time, and documentation that the company was engaged in a qualified trade or business. Since your stock is from 1994, having good documentation is especially important since those records are older.
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Hunter Edmunds
Has anyone dealt with the AMT implications of selling QSBS? I've heard the excluded portion might still be subject to AMT which could really reduce the benefit.
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Carter Holmes
•Yes, that's an important consideration! For pre-2010 QSBS with the 50% exclusion, 7% of the excluded amount is an AMT preference item. This means you add that portion back when calculating AMT income. For example, if you have a $1 million gain on qualifying 1994 QSBS, you'd exclude $500,000 from regular tax. But for AMT purposes, you'd have to add back 7% of that $500,000 (so $35,000) to your AMT income. This can sometimes push you into AMT territory if you have other AMT preference items.
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Taylor Chen
Great question about QSBS from 1994! Just want to add a couple of important points that others haven't mentioned yet: 1) Make sure to verify your company never converted from C-Corp to S-Corp during your holding period - even a brief S-Corp election can disqualify the shares entirely for QSBS purposes. 2) If you're considering the gift strategy, remember that your daughter would get a "stepped-up basis" equal to the fair market value at the time of gift for gift tax purposes, but she keeps your original 1994 basis for income tax and QSBS calculations. This could create some complexity in her tax planning. 3) One thing to watch out for - if this tech company went through any major restructuring, mergers, or spin-offs over the past 30 years, the QSBS qualification might have been affected. The "same corporation" requirement is pretty strict. Given the age of these shares and potential complexity, you might want to get a tax professional who specializes in QSBS to review your specific situation before making any moves. The 50% exclusion on 30 years of tech stock appreciation could be substantial!
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Ethan Wilson
•This is really helpful additional context! The point about corporate restructuring is especially important - I hadn't thought about how mergers or spin-offs could affect QSBS status. For a tech company from 1994, there's a good chance they went through some major changes over 30 years. Quick question about the gift basis rules - when you say the daughter gets "stepped-up basis" for gift tax purposes but keeps the original basis for income tax, does that mean she'd potentially owe gift tax on the full current value even though she can only exclude gains based on the original 1994 basis? That seems like it could create a significant tax burden for large positions.
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