When an Eight-Figure IPO Windfall Can Mean a Zero-Digit Tax Bill
11th June 2019
Entrepreneurs, venture capital firms, and early startup employees are using the Qualified Small Business Stock, or QSBS, provision to partially or totally wipe out their tax bills. “It’s an awesome way to mitigate tax,” says Richard Scarpelli, head of financial planning at First Republic Private Wealth Management. Of all the strategies that investors and business owners use to lower capital-gains taxes, he says, “this is by far the best.”
Shares are eligible for QSBS if they’re issued when a company has gross assets of $50 million or less. If you hold on to the stock for at least five years, you can avoid taxes on $10 million of any gains when you sell. But that $10 million is only a minimum—the law says you can instead shield as much as 10 times your initial investment, or basis, in the corporation. So a venture firm that put $10 million in an early startup could reap $100 million in tax-free gains. And QSBS’s benefit can be multiplied several-fold with clever planning.