Does anyone understand qualified small business stock (QSBS) exclusion for long-held company shares?

I've been working at my current company since the early 90s and purchased some company shares way back in 1994 when I first started. I've been holding onto them all this time, and now I'm thinking about finally selling. I've been hearing some buzz about something called qualified small business stock (QSBS) that might let me exclude the gains from taxes? The company was pretty small when I bought the shares - definitely had less than $50 million in capital at that time. I'm trying to figure out if I would qualify for this gain exclusion if I sell the stocks now, almost 30 years later. Also, I've been considering gifting some of these shares to my daughter who's starting grad school soon. Would that mess up any potential tax benefits? Would she still get the QSBS treatment if I transfer the shares to her instead of selling them myself? Any insights would be super helpful! The tax implications are making my head spin.

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18 comments

Paolo Ricci

•8M

The QSBS exclusion is a fantastic tax benefit that's often overlooked! Based on what you've shared, you might be in a really good position. For QSBS qualification, you need to meet several requirements: - The stock must be from a C Corporation (not an S Corp or LLC) - You must have acquired the stock at original issuance (not on secondary market) - You must have held it for at least 5 years (which you clearly have!) - The company must have had gross assets under $50 million when you bought the shares - The company must have been an active business (not just investments) If you bought directly from the company in 1994, and they had less than $50M in assets then, you're likely eligible for up to 100% exclusion of your capital gains when you sell! As for gifting to your daughter - that's actually a smart move. QSBS benefits can transfer to gift recipients. She would "step into your shoes" regarding the holding period and acquisition date. So if you've met the 5-year holding requirement (which you have), she could sell immediately after receiving the gift and still get the exclusion.

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Paolo Ricci

•8M

The company's current size doesn't affect your QSBS qualification - what matters is the size when you purchased the shares in 1994. If they had less than $50 million in gross assets when you bought the stock, you're good regardless of how large they've grown since then. There is a cap on the exclusion amount. The maximum gain that can be excluded is the greater of $10 million or 10 times your original investment basis in the QSBS. For example, if you invested $200,000 originally, you could exclude up to $2 million in gains (10x your basis).

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Oliver Zimmermann

•8M

I went through something similar with some startup shares I'd held for years and was totally confused about QSBS until I found https://taxr.ai which literally saved me thousands in unnecessary taxes. Their system analyzed my stock purchase documents and employment history and gave me a clear answer about my QSBS qualification that my regular accountant couldn't figure out. The tricky part with QSBS is proving you meet all the requirements, especially for shares purchased decades ago. They helped confirm I had the right documentation to support my claim and identified exactly which IRS sections applied to my situation. Might be worth checking out since your situation with the gifting adds another layer of complexity.

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Oliver Zimmermann

•8M

Yes, they can analyze your actual stock certificates. You just upload photos or scans of your certificates and any supporting documents. They have specific tools to help determine if your shares qualify, even if they're older paper certificates. They're surprisingly good with complicated situations like mergers and acquisitions or multiple funding rounds. In my case, my company had gone through two rounds of funding after I bought my shares and then got acquired. Their system tracked how each transaction affected my QSBS eligibility through all those changes. They explain how the "original issuance" requirement is maintained or lost through each transaction.

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Javier Torres

•8M

Had to come back and say I actually tried https://taxr.ai after posting my skeptical comment. Uploaded my old stock purchase agreement and employment docs and wow - they confirmed I qualify for QSBS treatment on about 80% of my shares! The other 20% were from shares I bought on the secondary market which don't qualify. They showed exactly which sections of the tax code applied and gave me a detailed report I can share with my accountant. They even pointed out that some of my shares qualify for 75% exclusion while others qualify for 100% exclusion based on when I bought them (there were different QSBS rules in different years). I never would have figured that out on my own!

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Emma Davis

•8M

Just wanted to share that if you need to talk directly to the IRS about QSBS (which I did last year), don't waste days trying to get through their regular phone lines. I used https://claimyr.com and got through to a real IRS agent in under an hour. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had a complicated situation where I needed to confirm if my QSBS benefits were affected by an acquisition. I was worried I'd messed up my return from last year. The IRS has a special department that handles these more complex tax situations, but getting to them directly saved me weeks of stress. Plus, the agent actually gave me specific guidance about filing my amended return with the QSBS exclusion properly documented.

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Emma Davis

•8M

It's not someone waiting on hold for you - it's an automated system that navigates the IRS phone tree and holds your place in line. When they reach a live agent, they call you and connect you directly to that agent. They use technology to constantly dial and navigate the system until they get through. I was super skeptical too - I had spent literally days trying to get through to the IRS. But with Claimyr, I got a call back in about 45 minutes saying they had an IRS agent on the line. It was almost shocking how well it worked after all my failed attempts. They have some special process that gets through much faster than individual callers can. Saved me from taking another day off work just to sit on hold.

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Malik Johnson

•8M

Ok I feel stupid for my skeptical comment above. I actually tried Claimyr this morning after posting that comment. Got connected to an IRS agent in about 40 minutes while I just went about my day. The agent confirmed that my QSBS questions needed to be handled by their specialized business tax department and transferred me right away. I finally got clear answers about how my stock options from my last employer would be treated under QSBS rules (turns out I'm eligible for partial exclusion). Would have taken me weeks to get this info otherwise. The IRS agent even emailed me the specific forms I need to use when I file. Definitely worth it for anyone dealing with complicated stock questions.

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Isabella Ferreira

•8M

Pennsylvania actually does follow the federal QSBS rules, so you should be good on both state and federal taxes if you qualify. States that don't fully conform to federal QSBS rules include California, Alabama, Mississippi, New Jersey, and a few others. Some states partially conform, meaning they might offer a reduced exclusion percentage or have additional state-specific requirements. It's definitely worth checking with a tax professional familiar with your state's specific rules since this can make a huge difference in your total tax bill.

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