The One Big Beautiful Bill Act (OBBBA) allows the seller of a qualifying small business to not pay Capital Gains Tax on the first $15M in qualifying gains. This new law can provide millions in tax savings to entrepreneurs.
If you’re a C Corp Owner and meet the Qualified Small Business Stock (QSBS) requirements, OBBBA offers new opportunities. Those benefits apply to both QSBS issued before and after July 4, 2025. If issued before that date, the benefits include…
Tiered exclusion: The previous “all-or-nothing” Capital Gains Rule has been replaced with a tiered exclusion based on your holding period.
1 – 3 years: 50% exclusion of capital gains.
2 – 4 years: 75% exclusion of capital gains.
3 – 5+ years: 100% exclusion of capital gains.
The Capital Gains Exclusion for QSBS issued before July 4, 2025 depends on the date the stock was issued and requires a five-year holding period for any exclusion.
1 – 100% exclusion: For QSBS acquired after September 27, 2010.
2 – 75% exclusion: For QSBS acquired after February 17, 2009, and on or before September 27, 2010.
3 – 50% exclusion: For QSBS acquired before February 18, 2009.
The maximum gain exclusion has been raised from $10 million to $15 million per shareholder. The threshold for a company to be considered a small business for QSBS purposes has increased from $50 million to $75 million in gross assets.
Further Limitations
To take full advantage of the tax benefits available under OBBBA, we’d need to talk early in the sales process to confirm your eligibility and plan accordingly.
1 – Confirm your QSBS status. Not all businesses qualify. Certain professional service businesses, for example, are typically ineligible.
2 – Calculate the potential gain exclusion. The amount of tax exclusion you can receive depends on how long you have held the stock.
3 – Manage documentation. A sales agreement must be prepared, and it’s crucial to have an attorney review it to ensure it is accurate and comprehensive. We’ll need to document your inventory, the business entity, and the QSBS issuance dates to prove eligibility for the tax exclusion.
Let me leave you with this…
The potential savings on this for entrepreneurs is huge.
An example would be someone selling an S Corp for $10M in a stock only sale vs. the sale of C Corp that qualifies under the QSBS Rules. The S Corp Owners would pay roughly $2.5M in Long Term Capital Gains Tax while the C Corp Owner would potentially pay nothing.
Yes. That’s correct. Zip. Zero. Zilch.
But before you get too excited and immediately call me to do a C Corp Conversion please realize that there are good and bad sides to this. That’s why I’m writing a three part series on this.
The largest detractor is the double income taxation rules for C Corps.
If you own a C Corp that shows a small profit of $100K, the corporation will pay a 21% Federal Tax, and a minimum 7% Illinois Tax. And when you take that money out of the C Corp, you’ll also pay your personal income tax rates a second time on the same money.
Double income tax is inherent in all C Corp Structures. Many increase their personal payroll to limit the effects of this secondary income tax, but that also increases their payroll tax load.
Again, there are pluses and minuses that need to be discussed. When you have questions, you know my number.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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