You’ve probably heard of QSBS — short for Qualified Small Business Stock — and how it can make your first $10 million in gains completely tax-free. But here’s what most people miss: you can multiply that limit to $20 million, $30 million, or even $50 million+ through a strategy known as QSBS stacking.

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💵 QSBS (Qualified Small Business Stock) is stock that meets the Section 1202 requirements of the Internal Revenue Code. If your startup qualifies as a qualified small business and you hold your shares for more than five years (the QSBS holding period), you can exclude up to $10 million of your capital gains from federal income tax when you sell. That’s the Section 1202 gain exclusion — one of the most powerful incentives for founders and early employees in tech.

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🔑 Here’s the key:
The $10 million QSBS exclusion is per taxpayer. That means if you gift some of your QSBS stock to a spouse, children, or to separate QSBS-qualified trusts, each of them can claim their own Section 1202 capital gains exclusion.

Let’s break that down:

• You sell your company for a $50 million gain.
• You personally hold $20 million of qualified small business stock → $10 million tax-free under the 1202 stock exclusion.
• You gifted another $20 million worth of shares to your spouse before exit → another $10 million tax-free under the same QSBS tax treatment.
• You created two separate trusts for your kids, each holding $5 million of Section 1202 stock → each trust can claim its own $10 million QSBS exclusion (complex but possible with proper QSBS qualification planning).

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💰💰💰 Suddenly, your “tax-free” isn’t capped at $10 million — it could be $30 million or $40 million+, depending on your structure.

Of course, QSBS eligibility and Section 1202 compliance aren’t automatic. You’ll need to confirm that your company meets the QSBS requirements (under $50M in assets, active business test, C-Corp status, etc.), that your shares were issued directly from the corporation, and that you’ve met the five-year QSBS holding period.

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At this level of tax optimization, you’re not just claiming an exclusion — you’re taking a position on Section 1202 tax treatment. So work with a seasoned CPA or tax advisor who understands the nuances of the small business stock gain exclusion and can build you a compliant QSBS stacking plan.

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