Bigger, Better: How The One Big Beautiful Bill Can Substantially Improve Your Return When Selling Your Business.

The recently enacted One Big Beautiful Bill Act (OBBBA) brings good news for investors and founders of qualified small businesses, significantly expanding the tax benefits available under Section 1202, also known as the Qualified Small Business Stock (QSBS) exclusion. The provision aims to incentivize investment in burgeoning enterprises.

Here's a look at the key changes to the QSBS exclusion:

Previously, investors needed to hold QSBS for at least five years to exclude 100% of eligible gains. Now, the OBBBA introduces a tiered exclusion schedule based on holding periods for stock issued after July 4, 2025.

For investors who hold qualified small business stock for at least three years, the exclusion percentage rises to 50%, meaning that half the capital gain from the sale of such stock can be excluded from federal income tax. If the holding period extends to at least four years, the exclusion increases to 75%, and, finally, a full 100% exclusion is available for stock held for five years or more, a powerful incentive for patient capital investment.

This new, graduated structure provides immediate and meaningful tax benefits to investors and entrepreneurs, while still rewarding long-term commitment to qualified small enterprises. By reducing the minimum holding period and introducing incremental gain exclusions, the Act enables founders, early employees, and investors to realize tax-advantaged liquidity events sooner without forgoing substantial portions of their gains.

The Act raises the per-issuer gain exclusion cap from $10 million to $15 million (adjusted for inflation for stock issued after the date of enactment, provided the QSBS was acquired after July 4, 2025). This enhancement considerably increases the aggregate amount of capital gains that can be sheltered from federal income tax under Section 1202, supporting both founders and early investors in maximizing the value they realize on exit or strategic sale. For high-growth businesses and their stakeholders, this change represents an expanded opportunity to retain greater post-transaction wealth.

The gross asset threshold to be considered a "qualified small business" for purposes of issuing QSBS has been increased from $50 million to $75 million (adjusted annually for inflation), broadening the pool of potential companies whose stock can qualify for these benefits. This revision modernizes the definition of a qualified small business, enabling more mid-market enterprises to take advantage of QSBS rules as they grow and access new capital. For business owners and founders operating in capital-intensive or rapidly scaling sectors, the increased threshold opens eligibility to a wider class of stock issuances, thereby multiplying planning options and enhancing the attractiveness of the QSBS regime for both investors and company leaders.

Whether selling is on your immediate horizon or not, it's worth looking at how you have your business structured to make sure you can take full advantage of these new laws when the time comes. If you are planning to sell, now is the time to be strategic. Set up a time to talk with our team, and we can do a no-cost assessment.

---