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Qualified Small Business Stock (QSBS) is a tax benefit that provides significant potential tax savings to holders of small business stocks. If certain conditions are met, the holder can exclude a portion, or potentially all, of their gain from the sale of QSBS from federal tax.
To qualify for QSBS status, a stock must meet several criteria. It must be issued by a domestic C corporation with gross assets of $50 million or less at the time of issuance, and the corporation must use at least 80% of its assets in the active conduct of a qualified trade or business. The holder of the stock must also have acquired the stock at its original issue and held it for at least five years. Given the potential tax savings, QSBS can be an appealing element of startup equity compensation.
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