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Small Business Qualified Stock’s Tax Benefits

August 8, 2022

Certain tax benefits are available to those who start or invest in startups. It can be challenging to determine, however, if you’re eligible to do so, since not every founder or investor can take advantage of the same benefits.

One avenue for potential tax advantages is known as qualified small business stock. These apples to shares of a C corporation with less than $50 million in total assets at the time the investment was originally made. This means that other forms of businesses, such as partnerships, S corporations, and LLCs, do not qualify.

Eligible sectors for business include manufacturing and technology, but typically not professional services, finances, agriculture, and hospitality. In order to reap the possible tax-free benefits of the sale of this stock, the shares must have been held for at least five years from the date they were originally acquired. If these shares were gifted to you by someone else, the period that the other person owned them also counts towards the five-year plan.

A few other requirements applicable to the sale of stock under these rules, such as:

  • The shares must have been acquired directly from the company rather than the secondary market
  • The gross assets of the. Business cannot exceed $50 million
  • The company in question must be legitimately involved in a qualified business or active trade, which means that 80% of the assets must be used in the active conduct of a business not meeting the terms of exclusions

Several business activities/industries are excluded, and these are:

  • Companies involves in performance arts, consulting, actuarial science, engineering, law, health, architecture, accounting, brokerage/financial
  • Farming
  • Oil or gas production or extraction
  • Banking, financing, leasing, and insurance
  • Hotels, restaurants, and similar companies
  • Any company in which the principal asset is the skill or reputation of at least one employee

Do you own shares in a C corp where you could potentially sell them tax free? Set up a time to speak with our financial team to learn more.


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Schedule your free Exploratory phone call

Click here to see how we
can be of assistance.

Careers/Open Positions

Explore all available job
listings and become a part of an amazing team.

Our Social Media

Connect with us on Social Media using the following buttons:

Visit our Podcasts

Listen in, Join the Conversation!

Recent Posts
How Financial Frictions Hinder Innovations

A recent study co-authored by Wharton’s Thomas Winberry reveals that financially constrained firms face a ...

The post How Financial Frictions Hinder Innovations first appeared on Integrated Tax Planning, Legal Planning & Financial Planning.

See more
5 Budgeting Myths That Stop People from Saving

Budgeting is crucial for managing your money well. However, many people avoid it because they ...

The post 5 Budgeting Myths That Stop People from Saving first appeared on Integrated Tax Planning, Legal Planning & Financial Planning.

See more