When it comes to building and growing a business, founders and investors are always looking for opportunities to maximize investment and protect long-term gains. One of the most powerful—but often overlooked—provisions in the tax code is Qualified Small Business Stock (QSBS) under IRC Section 1202. 

What Is QSBS? 

Qualified Small Business Stock (QSBS) refers to shares in certain domestic C corporations that meet specific requirements. If those requirements are satisfied, shareholders may be eligible to exclude a portion (or even all) of the gain from federal taxes when they sell their stock. 

The potential benefits are substantial. In many cases, QSBS allows founders, early employees, and investors to reduce or eliminate capital gains tax when selling stock that has appreciated significantly in value. This makes QSBS an important factor to consider during fundraising, business structuring, and exit planning. 

Recent Changes Under the OBBB 

The One Big Beautiful Bill (OBBB), effective July 2025, has reshaped the landscape for QSBS. Updates include: 

• A new tiered structure for holding periods (3 years – 50% capital gain exclusion, 4 years – 75%, 5+ years – 100%) – so gain on the sale of the stock can be excluded earlier; 

• An increased exclusion cap of $15 million per taxpayer, per issuer – so more companies will qualify as small businesses. 

• Relief from the Alternative Minimum Tax (AMT), ensuring the full benefit is preserved. 

These changes create both new opportunities and new complexities for business owners and investors. 

Why QSBS Is Gaining Attention 

QSBS has been around for years, but with the OBBB changes and a growing demand for certainty in fundraising, it has moved into the spotlight. Due to the significant tax benefit associated with this provision, investors and advisors are requesting formal QSBS certification during due diligence. These certifications provide confidence that stock meets the requirements of Section 1202 and help protect against future IRS challenges and penalties. 

How YHB Can Help 

At YHB, our tax professionals and CPAs stay at the forefront of developments like QSBS. We combine technical expertise with a deep understanding of the industries we serve, helping clients navigate evolving opportunities with confidence. 

If you’re a founder, investor, or advisor and want to better understand how QSBS could impact your business or investment strategy, we’re here to help. 

Contact us today to discuss QSBS and learn how YHB can provide clarity and confidence.