Thread by @baldridgecpa

The One Big Beautiful Bill just turned the best tax break in America into an absolute monster.

- $15 MILLION of tax-free gains.
- Sell in just 3 years.
- More companies qualify

If you’re building a startup, this changes everything.

Let’s walk through the new QSBS rules:

Qualified Small Business Stock (QSBS) lets you pay ZERO federal tax on gains when you sell your company.

Used to be $10MM. Now it’s $15MM.

Or 10x your investment of a ‘small’ company you to 75MM- whichever is greater.

That’s generational wealth, completely tax-free.

QSBS has been around since 1993 with the passage of section 1202 - created to encourage small business investment.

But for 30+ years, the limits stayed frozen while everything else inflated.
The OBBB finally modernized it for 2025 valuations.

To qualify for QSBS:

✅ C-Corp with less than $75MM in assets (up from $50MM)
✅ Original stock issuance (not secondary)
✅ Hold for at least 3 years for partial benefit (down from 5 years)
✅ Active business, not investments
✅ Many businesses qualify (except certain services)

The new tiered holding periods are HUGE:

3 years = 50% exclusion
4 years = 75% exclusion
5 years = 100% exclusion

No more waiting 5 years for ANY benefit. You can exit after 3 and still save millions.

The math is incredible.
Invest $1MM → Sell for $11MM = $10MM gain

At 3 years: Save $1MM in taxes
At 4 years: Save $1.5MM in taxes
At 5 years: Save $2MM+ in taxes

Without QSBS: You’d pay it all.

Venture Capital has always understood this! - this flows through funds too.

Most venture LPs don’t realize they get these benefits on portfolio company exits.

I’ve seen an LP leave millions on the table because they didn’t know to claim it.

The 6-month rollover provision still exists.

Sold too early? Roll the gains into another QSBS-eligible company within 60 days.

Your holding period carries over. No tax on the rollover.

Chain these together and compound tax-free until it’s time to sell.

Who should restructure immediately:

1. Startups approaching or past $50MM in assets - you just got a 50% increase in headroom
2. Profitable businesses considering C-Corp conversion that want to sell
3. Anyone who thought 5 years was too long to wait who can still wait 3.

The downsides haven’t changed -

Double taxation while you hold. C-Corps pay 21% on profits. Then you pay tax on dividends.

Also built in gains tax.

But if you’re building to sell (not distribute), this is irrelevant.

Most high growth startups never pay dividends anyway.

Critical compliance points:

- These new benefits ONLY apply to stock issued after July 4, 2025
- Get it right at formation (fixing later is expensive)
- Document everything at issuance
- No special election needed - just meet the requirements

Get professional help here!

State conformity matters.

Not all states follow federal QSBS rules. California notoriously doesn’t.
Check your state before assuming you’re home free.

Some states may update their laws to match - worth monitoring.

Timing is everything.

Every day you wait to restructure might mean money left on the table.

The clock starts when you issue the shares, not when you incorporate.

Stock issued before July 5, 2025 follows the OLD rules.

No shortcuts.

Bottom line: The OBBB just took the deal of the century for builders and made it even better.

$15MM tax-free.
50% benefit in just 3 years.
A bunch more companies qualify.

If you’re on the fence about converting, this tips the scales.

Good news!

The great Roger Ledbetter and I are running office hours next Tuesday.

We read the entire Big Beautiful Bill so you don’t have to.

We will break it down and leak all the alpha.

Register even if you can’t attend and we share the cast.

lu.ma/yg5s3xti