One of the most substantial tax breaks for noncorporate taxpayers today is the federal income tax exclusion available upon the sale of qualified small business stock (QSBS). A sought-after tax break for early-stage investors and a welcome if not unexpected windfall for many founders and entrepreneurs, Sec. 1202 provides that if a noncorporate taxpayer sells QSBS issued after Sept. 27, 2010, the first $10 million of gain (or 10 times basis in the stock, if greater), is 100% excluded from federal income taxation.1 Thus, a sale of $10 million of QSBS represents $2.38 million2 in federal tax savings, compared with a $10 million gain realization on the sale of non-QSBS stock.
Originally enacted in 1993, the Sec. 1202 exclusion has become more valuable in recent years for several reasons. First, the original statute provided for only a 50% exclusion from income taxation. The…
