Keiretsu Academy: Everything You Want to Know About Qualified Small Business Stock (QSBS)
Wednesday, May 29th, 2019
2815 Eastlake Ave E #300
Seattle, WA 98102, USA
Everything you want to know about Qualified Small Business Stocks! This decades-old provision in the tax code was long forgotten. Yet, thanks to relatively recent tax code changes, it’s something nearly everyone in the start-up community should revisit.
- Under Sec. 1202, gain on the sale of qualified small business stock (QSBS) held for five years is partially or entirely excluded from income. Since Sec. 1202 was enacted, the maximum exclusion has ranged from 50% to the current 100% of gain on qualifying stock sales.
- For stock to be QSBS, the corporation issuing the stock must be a C corporation when the stock is issued, meet two gross-assets tests, and meet active trade or business requirements for substantially all of the shareholder's holding period.
- For the holder of the stock to qualify for the exclusion, the holder must acquire the stock at original issuance and must hold the stock for five years. The date of issuance of stock for these purposes depends on how the holder acquired the stock.
- For the corporation issuing the stock to meet the active business requirements during substantially all of the shareholder's holding period, it must be an "eligible corporation," and it must use at least 80% (by value) of its assets in the active conduct of one or more "qualified trades or businesses."
- Assets held for "reasonably required working capital needs" are treated as used in a corporation's active conduct of a trade or business. The Tax Court has defined working capital needs as the amount of cash reasonably expected as being sufficient to cover a corporation's operating costs for a single operating cycle.
- The amount of gain taken into account in a year under Sec. 1202 is limited by a $10 million cumulative limit and an annual limit of 10 times the basis of QSBS sold during the year that apply per shareholder and per corporation.
Ashley E. Velategui, CFA
Director—Wealth Strategies Group
Ashley E. Velategui is a Director in Bernstein’s Wealth Strategies Group and is based in the firm’s Seattle office. She works closely with high-net-worth families and individuals and their professional advisors on a variety of complex investment planning issues, including pre-transaction planning, multigenerational wealth transfer, retirement planning, philanthropy, and diversification planning for holders of concentrated portfolios. Ashley joined the firm in 2007 and began working with the Wealth Strategies Group in 2011, serving as an analyst and senior analyst before becoming an Associate Director in 2014. She earned a BA, magna cum laude, in mathematics and economics from Whitman College and is a Chartered Financial Analyst charterholder.
If you would like to attend, please register online here or contact Claire Dillow at email@example.com.