Cap table

 View Only
  • 1.  QSBS Tax Savings

    Posted 12-07-2023 11:23

    Did you know it's possible to reduce your capital gains tax rate by 100%? The qualified small business stock (QSBS) exclusion is a U.S. tax benefit that applies to eligible shareholders. And the financial upside can be significant. QSBS can help employees save up to $10M of federal capital gains tax-free. For investors, QSBS protects up to 10x your investment from long-term capital gains taxes, or $10 million, whichever is greater.

    How does such a big tax break exist?

    • QSBS was created to encourage more investing in small businesses, including startups, which can be a risky choice. To make the risk more attractive to founders, investors, and early employees, the U.S. government added this tax break in 1993.

    How do you know if you're eligible?

    • Your company must be a QSB at the time you acquire or exercise your shares.

    How do you know if your company is a QSB? Requirements include:

    1. Its gross assets total $50M or less at the time your equity is issued AND when you acquire or exercise your shares.
    2. It's still an active business when you sell.
    3. It's registered as a C-corp.
    4. It doesn't operate in an excluded industry (i.e. banking, restaurants, consulting).
      • These requirements each have nuance to them, so your company will determine if they meet them.

    Important: If your shares are eligible, you'll have to hold them for at least 5 years before selling to take advantage of this tax break. After 5 years, you can sell your qualified stock and potentially pay no capital gains tax (if you've met all the requirements). A tender offer, a bilateral secondary transaction, or an IPO are a few of the ways you can sell.

    To help more startups benefit from this tax break, the Carta platform can identify, tag, and attest to the validity of QSBS shares. We'll review your eligibility and (if you qualify) provide an attestation letter for you to share with investors and employees when filing taxes.

    If you're interested in taking advantage of the QSBS tax break, we recommend talking to an Equity Tax Advisor before making any decisions about exercising or selling any equity.



    ------------------------------
    Brent Devey
    Community Manager
    Carta
    Salt Lake City UT
    ------------------------------