Tactic
QSBS: pay zero tax on the first $10M when you sell your company
Sam explains QSBS (Qualified Small Business Stock): if you hold C-corp stock for 5 years, you owe no federal tax on the first $10 million of gains when you sell — which he calls the greatest American tax hack.
“So if you sell a business and you've owned the business stock for 5 years and it's a C corp, if you sell your company, the first $10 million in sales or in profit that you make, your company, you don't pay taxes on.”
Steal thisStructure as a C-corp and hold your founder stock at least 5 years to qualify for the QSBS exclusion.
Fact
QSBS: pay zero federal tax on the first $10M of a sale
Andrew explains he structured his exit as a stock purchase to qualify for QSBS (Qualified Small Business Stock), which exempts up to the first $10M of gain from federal taxes. He flags it as essential knowledge for anyone selling a business.
“We did a stock purchase, so I benefited from QSBS, which if you're looking to sell a business, look up QSBS. You pay zero federal taxes on up to the first $10 million.”
Steal thisStructure your company so an exit qualifies for QSBS and shields the first $10M of gain from federal tax.
Tactic
Have the acquirer buy your cash to get QSBS on it
Andrew negotiated to roll $2M of company cash into the purchase price at a 1x multiple. Normally that cash gets distributed and taxed at ~40%; by selling it as part of the QSBS stock deal, he shielded it from that tax.
“typically if you are acquired, you have $2 million cash in the bank account that is divided back out to shareholders and you're taxed at 40%. So we got QSBS on that $2 million cash.”
Steal thisIn a stock sale, fold your bank cash into the purchase price at 1x so it inherits the QSBS tax treatment.
Fact
QSBS: skip federal capital gains on up to $10M of startup stock
Shaan explains Qualified Small Business Stock: hold qualifying C-corp small-business stock for ~5 years and you can avoid federal capital gains tax on up to $10 million of the gain. Sam notes you don't have to set it up in advance, just check whether you qualify when you sell.
“Yeah, I mean, basically you have, uh, as long as you own a small business stock for 4 years, 5 years, you don't have to pay federal capital gains tax up to $10 million, of $10 million of the gain, correct?”
Steal thisIf you hold founder/early C-corp stock, check QSBS eligibility before selling to potentially exclude up to $10M of gains.