Chicago Business Attorney Blog
Small business owners and startup founders now have a powerful reason to take another look at Qualified Small Business Stock (QSBS). A new federal law, the One Big Beautiful Bill Act, signed on July 4, 2025, makes QSBS more valuable than ever for growing companies and their stakeholders.
These changes give business owners, employees, and early investors more flexibility and larger tax breaks when selling shares. Whether you’re raising capital, attracting top talent, or planning an exit, this law could have a direct impact on your bottom line.
What Changed And Why It Matters
One of the biggest updates is a shorter holding period for QSBS tax benefits. Under the old rules, you had to hold the stock for five years to get the full 100% exclusion on capital gains. Now, you may qualify sooner:
3 years → 50% exclusion
4 years → 75% exclusion
5 years or more → 100% exclusion (unchanged)
This gives founders and employees more exit flexibility without losing the benefits of QSBS. However, keep in mind that the portion of gains not excluded will be taxed at a higher 28% rate.
The new law also increases the lifetime gain exclusion from $10 million to $15 million per taxpayer per company, adjusted for inflation. This means more of your gains can qualify for tax-free treatment, especially helpful for business owners expecting a high-value exit.
Another key change: the gross asset limit for QSBS eligibility is now $75 million, up from $50 million. That makes many more companies eligible, including those undergoing rapid growth or raising larger investment rounds.
What This Means for Small Business Owners
If you’re operating as a C corporation, or thinking about becoming one, now is a good time to talk to your advisors about QSBS. Here’s what you should consider:
Issue stock after July 4, 2025, to qualify under the new rules.
Make sure your company meets Section 1202 requirements, including being an
active business and staying under the $75 million asset limit.
Structure employee equity and early investments to take advantage of the
updated exclusion thresholds.
Also, don’t forget that state tax laws may differ. Some states do not follow the federal QSBS exemption, which could impact your planning. For some business owners, it may make sense to explore options like non-grantor trusts to spread the benefit across multiple taxpayers.
Looking Ahead
These changes mark the biggest expansion of QSBS in over a decade. For small businesses, it’s a rare opportunity to lock in major tax savings while still maintaining flexibility around growth and exit timelines.
If you’re raising funds, planning a sale, or simply want to make your company more attractive to investors and key employees, now is the time to act. At Bellas & Wachowski, we help small business owners navigate opportunities like these. Contact us at 800-825-9260 today to learn how the updated QSBS rules could
support your long-term goals.