QSBS Tax Break Expands With New $75M Cap: What the “One Big Beautiful Bill” Means for Founders

Too good to be true? It’s not. It’s called Qualified Small Business Stock (QSBS), and right now it’s getting a game-changing upgrade.

Can you imagine selling your company and paying $0 in Federal Capital Gains Tax on up to $75 million?

Thanks to the “One Big Beautiful Bill” making its way through Congress, the QSBS tax break, already one of the most powerful wealth-building tools for startup founders, is poised to expand dramatically with a new $75 million cap on tax-free gains.

Yet, most founders have no idea QSBS exists, let alone how to leverage it strategically. That ignorance? It’s expensive.

Miss out on QSBS planning, and you might end up donating millions to the IRS unnecessarily.

Why This Moment Matters:

• The legislation is in motion.

• The stakes are higher than ever for startup founders, employees, and investors.

• Proactive planning now could lock in tens of millions in tax savings later.

VCs and founders are already taking notice. One of the recent viral tweets highlight:

“Huge if true: QSBS exemption potentially increasing to $75M from $10M. Could be massive for founders and early employees.” 

Ready to understand how this affects your startup, your equity, and your exit strategy? 

Let’s break it down and along the way we’ll show you how doola tax filing helps maximize every dollar of this benefit. 

What Is QSBS?

Qualified Small Business Stock (QSBS) is a section of the US tax code (IRC 1202) designed to incentivize investment in small businesses. 

Here’s the cheat sheet for eligibility:

• Issued by a C-Corporation (not LLC, not S-Corp)

• Gross assets under $50M at the time of stock issuance

• Active business qualification (not investment companies, finance, etc.)

• Held for at least 5 years or more

• Acquired directly by the taxpayer (not through purchase from another)

When leveraged strategically, QSBS isn’t just a tax break; it’s a wealth-building superpower for startup founders.

Why the 5-Year Rule Matters

If you’re thinking about when to issue founder stock or plan an exit, this 5-year holding period is crucial for timing your QSBS eligibility.

Let’s take a quick example of a C-Corp founder’s timeline:

Year	Event
2024	C-Corp formed, stock issued
2025-2029	Business operates, grows
2030	Company sold, QSBS exclusion applies

The earlier you start your 5-year QSBS clock, the sooner you unlock the door to potentially tens of millions in tax-free gains, and doola can help ensure you structure it right from day one.

Why Founders Should Care:

If you receive common stock in your startup when valued at $5M and exit for $60M six years later, you could exclude up to $75M in gains from federal taxes under the new rules.

Employees, advisors, and early-stage investors with stock grants also stand to benefit massively.

🔖 For a deeper dive on QSBS foundations, check out our blog: QSBS Explained: Slash Your Taxes.

The New $75M Cap: What’s Changing in 2025

Currently, here’s where we stand: 

📌 QSBS offers an exclusion of the greater of $10M or 10x your investment basis.

Proposed Change via the “One Big Beautiful Bill”

A flat $75 million cap per taxpayer on tax-free gains, regardless of basis.

Following weeks of rigorous negotiations, Congress officially passed, and President Donald Trump signed into law on July 4, 2025, the sweeping “One Big Beautiful Bill Act.” 

This transformative legislation significantly enhances the tax advantages provided under Section 1202 of the Internal Revenue Code (the Code).

Section 1202(a)(5)-(6) of the Code, as newly enacted, introduces the following tiered exclusion regime for gains on Qualified Small Business Stock (QSBS) acquired after July 4, 2025, categorized as Post-Enactment QSBS.

The 100% five-year gain exclusion remains intact for QSBS acquired on or before July 4, 2025 (Pre-Enactment QSBS). The new tiered exclusions apply only to Post-Enactment QSBS. 

Under the Act’s tacking rules via Section 1223, holding periods on Pre-Enactment QSBS cannot be reset through stock-for-stock exchanges or reorganizations.

🔍 What’s Not Yet Clear Stacking across companies: Yet to be decided Retroactive application: Pending legislation details

Let’s break it down with two scenarios:

Founder Type	Old QSBS	New QSBS (Proposed)
First-Time Founder	$2M basis, $50M exit → Exclude $20M	Exclude up to $50M (within $75M cap)
Serial Founder	$5M basis, multiple exits → Limited stacking	Potential $75M cumulative cap

📌 Note: “Per taxpayer” ≠ per company. It’s likely cumulative across multiple companies, which is huge for serial founders.

Quick Check: Would You Benefit from QSBS?

Here’s a quick reality check for any founder thinking long-term about their business and their personal upside:

1. Is Your Startup Structured as a C-Corp?

QSBS benefits only apply to qualified small business stock issued by a US C-Corporation; not LLCs, not S-Corps.

If you’re serious about optimizing for future tax savings, this is non-negotiable. Delaware C-Corp? Even better.

2. Were You Granted Your Stock Early?

Timing matters. The QSBS five-year holding period starts ticking from the date your shares were issued, not from the date of incorporation or your first investor check. 

The sooner you’re granted stock, the sooner you unlock potential tax-free upside down the line.

3. Do You See a Future Exit or Liquidity Event Exceeding $10M?

If you’re building with venture-scale outcomes in mind (acquisitions, IPOs, or even secondary sales), QSBS can protect up to $10M (or more) in gains from capital gains tax.

That’s not just a perk; it’s life-changing. Ignore it at your peril.

If you answered ‘yes’ to any of these…you should really care about QSBS. This isn’t just your usual tax trivia; it’s a tool for future wealth, smarter fundraising, and long-term strategy.

Strategic Implications for Founders and Investors

QSBS isn’t just another tax code footnote. It’s a powerful strategic lever that founders and investors can use to shape smarter decisions at every stage of the startup journey, from how you issue equity to how you plan your exit. 

Let’s break down what it means for founders and investors. 

Equity Structuring: Get the Foundations Right from Day One

One of the most valuable strategies a founder can deploy is issuing QSBS-eligible stock as early as possible, ideally, at incorporation.

Start the QSBS clock early.

Because the 5-year holding period doesn’t start when your company gets big, it starts the moment the shares are issued.

If you wait to restructure later, you’ll lose valuable time on the QSBS clock.

📌 Let’s take an example:

If you incorporate your startup in January 2025 and issue founder stock immediately, your QSBS clock starts ticking from that date. 

By January 2030, you may be eligible for up to $10M in federal capital gains exclusion, or potentially more under the 10x basis rule.

Action	QSBS Clock Starts	Potential Tax-Free Exit Window
Stock Issued 2025	2025	Eligible by 2030
Stock Issued 2027	2027	Eligible by 2032

Entity Structure Matters: A C-Corp Is Non-Negotiable

QSBS only applies to qualified small business stock issued by a US C-Corporation. LLCs, S-Corps, and other structures won’t qualify. 

This is why many venture-backed startups standardize on the Delaware C-Corp model — not just for VC preferences, but for long-term tax planning benefits like QSBS.

💡 Key Takeaway: The smartest founders think about QSBS from day one. Aligning your entity structure, cap table, and stock issuance early can unlock life-changing tax benefits down the road.

Fundraising Strategy: QSBS Is Now Part of Due Diligence

Savvy investors increasingly inquire about QSBS eligibility during due diligence because it directly impacts their post-exit returns. A $10M return on QSBS-eligible stock could mean zero federal capital gains tax. 

Investors are now paying close attention.

The same return on non-QSBS stock? Expect a hefty tax bill.

📌 Use Case: Angel Investor

Consider an angel investor writing a $500,000 check into a pre-seed round at a $5 million valuation. If that investment qualifies under QSBS, the potential upside becomes dramatically more compelling. 

Under current rules, this investor could realize 100% federal tax-free capital gains on up to $10 million from that investment, provided they meet the 5-year holding period and other eligibility requirements.

This changes the risk-reward calculation. Instead of focusing solely on whether the startup can deliver a 5x or 10x return, investors can now weigh the fact that those gains won’t be diminished by federal capital gains tax. 

Early-Stage Valuation 

Valuations influence how much stock is issued, the 10x basis rule, and the potential gain exclusions. Over-inflated early valuations may erode future QSBS upside.

Valuation Stage	Investment	Potential QSBS Exclusion (10x Basis Rule)
$5M Pre-Seed	$500k	$5M Tax-Free Potential
$10M Series A	$1M	$10M Tax-Free Potential

💡 Key Takeaway: QSBS adds another lens to how investors and founders view fundraising milestones, dilution, and early valuation management.

Exit Planning: Timing Is Everything

If you’re nearing a lucrative acquisition offer but haven’t crossed the 5-year QSBS threshold, consider the math carefully. Waiting an extra 6 months could mean paying zero tax on millions. That’s a material incentive to delay exits strategically.

Wait for the 5-year mark for maximum benefit.

📌 Let’s take an example:

• Selling after 4.5 years: Potential 20%+ capital gains tax

• Selling after 5 years: Potential 0% capital gains tax via QSBS

Even on a modest $5M exit, this could mean a $1M+ swing in after-tax proceeds.

Stock vs. Asset Sales: Critical for Structuring

Asset sales generally don’t qualify for QSBS benefits; stock sales do. Buyers often prefer asset deals for liability reasons, but savvy founders and investors will fight harder for stock sales if QSBS eligibility is at stake.

💡 Key Takeaway: Align exit timing and deal structure with QSBS implications. Don’t leave tax optimization on the table.

Special Considerations for QSBS

If you sell shares on a secondary market before hitting the 5-year holding period, those shares lose QSBS eligibility. This is crucial for founders considering early liquidity, weigh the short-term gain vs. long-term tax-free potential.

Secondary Sales Before 5 Years = No QSBS

Use Case Scenario: Founder sells $500k in shares at Year 4 = taxable Founder holds $500k in shares until Year 5 = potentially tax-free

Let’s simplify it further with the examples of serial and international founders.

1. Serial Founders: Multiple Exclusions, Pending IRS Guidance

Some founders operate multiple startups under separate C-Corps. In theory, each corporation could offer a separate $10M QSBS exclusion (or more under 10x basis). 

However, the IRS hasn’t issued crystal-clear guidance on how aggressively this can be stacked. Proceed, but consult top-tier tax counsel.

2. International Founders: US C-Corp Is Key

For non-U.S. founders targeting US markets, QSBS is one more reason why forming a Delaware C-Corp is the gold standard. 

Without it, you lose access to this powerful exemption entirely.

Scenario	QSBS Eligible?
Non-US founder, US C-Corp	✅ Yes
Non-US founder, foreign entity	❌ No

💡 Key Takeaway: Plan proactively, entity structure and timing matter even more when you’re scaling across borders.

Avoid These Common Missteps (Or They’ll Cost You Your QSBS Benefits)

When it comes to QSBS (Qualified Small Business Stock), small mistakes today can lead to big regrets later.

If you’re not thinking ahead when it comes to structure, documentation, and valuations, you could accidentally disqualify your shares from tax savings worth millions at exit.

Here’s a breakdown of the most common mistakes, why they matter, and how to fix them.

Switching to an LLC After Issuing QSBS Shares

Business Impact: QSBS eligibility only applies to C-Corps. If you issue stock under a C-Corp and later convert to an LLC, you risk forfeiting QSBS status retroactively on any gains. This could mean losing out on up to $10M in tax-free capital gains per founder or shareholder.

Say, for example, a founder issues shares under a Delaware C-Corp in 2025. In 2027, they convert to an LLC for operational reasons. 

So the 2-year QSBS clock? Wiped out. When they eventually sell, none of the gains qualify.

✅ Solution: If you’re aiming for QSBS protection, stick with a C-Corp structure for the long haul. Make this decision early and treat it as non-negotiable. If flexibility is needed for other reasons, consult your legal and tax teams before making changes.

doola helps you set up your C-Corp correctly from the start, with clarity on how it ties into QSBS eligibility.

Poor Stock Issuance Documentation

Business Impact: Are you struggling with sloppy cap table management, missing board approvals, or vague SAFEs/Notes? These gaps in documentation create major issues during diligence and can invalidate QSBS eligibility if it’s unclear when and how stock was issued.

For example, say an investor buys shares during a friends-and-family round. Years later, there’s no signed board approval on file. Without proof of issuance date and FMV, it’s hard to establish QSBS status, and harder to defend in an audit.

✅ Solution: Get proper legal approvals and meticulous records at every stage. This includes board consents, 83(b) elections (when applicable), stock certificates, and clean cap table management.

With doola’s tax filing services, you get guidance on clean, audit-ready documentation from day one, not just at exit.

Ignoring FMV Tracking at Issuance

Business Impact: The IRS cares deeply about valuation at the time of issuance. If FMV (Fair Market Value) isn’t properly established and documented, your shares could face scrutiny, opening you up to penalties, disputes, or retroactive tax adjustments. 

Worse, without FMV clarity, QSBS holding periods may be challenged.

Suppose a founder issues common stock but uses a “guess” for FMV rather than a formal 409A valuation. Years later, during diligence for acquisition, the acquirer’s counsel flags this. 

Now the founder must backtrack with expensive retro valuations, potentially disqualifying QSBS.

✅ Solution: Always get a formal 409A valuation when issuing stock. Keep records updated annually or after material events (fundraising, pivots, M&A offers). Your QSBS clock depends on it. 

The Founder’s QSBS Checklist: Get This Right, Today

If you want to benefit from up to $10M in tax-free capital gains through QSBS, there’s no room for error. Getting your structure and documentation right from day one isn’t just essential, it’s mission-critical.

Here’s your non-negotiable checklist to lock in your eligibility and avoid painful (and expensive) mistakes down the line.

Confirm Your C-Corp Status And Stick With It

QSBS only applies to C-Corporations. LLCs, S-Corps, and hybrid setups don’t qualify. Delaware is the gold standard for startups, and for good reason: investor preference, legal precedent, and clear QSBS pathways.

Always double-check the following:

• Are you incorporated as a Delaware (or US) C-Corp?

• Has this been documented cleanly and consistently since formation?

Lock this down early and avoid conversions later.

Review All Stock Issuance Documentation

Your QSBS clock starts when stock is properly issued, not promised. This means clean records on:

• Board approvals

• Issuance dates

• 83(b) elections (if applicable)

• Stock certificates

• Updated cap tables

Sloppy paperwork kills QSBS faster than you think. Investors will expect these documents during diligence. So make sure your house is in order.

Consult a Tax Pro Who Understands QSBS (Like doola)

QSBS involves federal, state, and entity-specific nuances. A tax partner who understands founders, startups, and venture-scale growth can help you:

• Confirm eligibility

• Avoid disqualifying actions (like premature conversions)

• Optimize tax strategies beyond QSBS

doola specializes in this exact playbook, from incorporation to compliance to exit.

Now checking these boxes is just the beginning. QSBS isn’t a “set it and forget it” advantage.

Ongoing compliance is key to protecting your eligibility, and we’ll cover that next.

Compliance Matters: How to Qualify and Maintain Eligibility

When it comes to unlocking the full tax benefits of QSBS, compliance isn’t something you handle retroactively; it’s something you need to architect intentionally from day one. 

Securing and preserving QSBS eligibility requires careful attention to your company’s legal structure, how you issue stock, and how you document key milestones over time.

Key Documentation: What You Need to Get Right

From the moment you incorporate to your eventual exit, you need to ensure your paperwork is airtight, your records are current, and your compliance is proactive.

Here’s what you need to focus on to keep your QSBS status secure:

1. Stock Certificates

Properly executed stock certificates are a proof of ownership and the starting point for your 5-year QSBS clock. Missing, inaccurate, or backdated certificates are red flags that can jeopardize your eligibility down the line.

2. Board Consents

Board approvals for stock issuances, valuations, and other corporate actions should be formally documented through board consents or resolutions. 

These records demonstrate that your company followed proper corporate governance procedures, which the IRS will expect to see if your QSBS claim is ever examined.

3. Fair Market Value at Issuance

Clearly documented fair market value (FMV) at the time of stock issuance is crucial for establishing your basis and proving compliance with QSBS rules. 

Valuation reports, 409A appraisals, or detailed financial records supporting your FMV should be maintained and updated regularly.

4. Tax Records (Forms 2553, 1120, etc.)

Your corporate tax filings tell the story of your entity’s status and operations. Filing as a C-Corp with the IRS via Form 1120 and avoiding missteps like electing S-Corp status are key to preserving eligibility. 

Proper tax records also help verify your gross asset levels stayed within QSBS thresholds.

Entity Structure Traps to Avoid

There are two main scenarios you need to be wary of:

⚠️ LLC to C-Corp Conversion Timing

If you’re starting as an LLC and plan to convert to a C-Corp for QSBS purposes, timing is critical. The 5-year QSBS clock doesn’t start until stock is issued by the C-Corp. 

Delaying this conversion can push your tax savings further into the future, potentially beyond your exit timeline. Early planning avoids costly surprises.

⚠️ Avoiding S-Corp Election

QSBS benefits apply strictly to C-Corporations. If you inadvertently elect to be taxed as an S-Corp, you’ll lose QSBS eligibility. 

Many founders make this mistake in pursuit of short-term tax efficiency, only to regret it when a liquidity event is on the horizon.

Common Mistakes That Can Ruin Your QSBS Eligibility

Far too many founders miss out on this powerful tax benefit simply because they didn’t know the rules, or assumed they could clean things up later.

Unfortunately, there’s no “fix it after the fact” option with QSBS. 

Here are some of the most frequent (and costly) mistakes that can quietly disqualify you from claiming up to $10M (or even $75M) in tax-free gains. 

❌ Issuing Stock Too Late

Your eligibility clock starts ticking when the stock is issued, not when you form the company or think about QSBS.

Delaying issuance, especially for founders and early employees, can push your tax-free window out of reach just when you need it most.

❌ Swapping Stock for Services

Stock issued in exchange for services, rather than for cash or direct investment, can disqualify shares from QSBS treatment.

It’s a common misstep during early-stage deal-making with advisors, contractors, or employees.

Be intentional with your equity grants.

❌ Improper Use of Holding Companies

Operating through a holding company or using layered entities without clear qualification can muddy the waters and threaten your QSBS status.

The rules are designed for operating businesses, not passive investment vehicles. 

So, always be cautious with complex structures.

📝 QSBS Eligibility Checklist ✔️ Your company is a C-Corporation (not LLC or S-Corp) ✔️ Gross assets were under $50 million at the time of your stock issuance ✔️ Your business is actively operating (not an investment or finance company) ✔️ You received direct stock issuance (not purchased on a secondary market) ✔️ You’ve held the stock for at least 5 consecutive years

QSBS & the $75M Future: FAQs You Need to Ask

1. Is this really going to pass?

It’s highly likely but not guaranteed, track updates closely.

2. What if I already sold part of my company?

Partial sales before 5 years don’t qualify; future gains might.

3. Do SAFEs or convertible notes count toward QSBS?

Yes, but not until they convert to stock.

4. What happens if my startup gets acquired early (before 5 years)?

There are strategies, speak to your tax advisor ASAP.

5. Can I get QSBS benefits if I moved out of the US?

Definitely, if structured correctly via a US entity.

5 Steps for Founders to Prepare for the $75M Cap

If you’re serious about maximizing the potential QSBS tax exemption, which could jump from $10M to $75M, preparing early is a strategic move every founder should lock in now.

Whether you’re still pre-raise, mid-scale, or already generating revenue, here’s how to future-proof your eligibility and ensure you’re positioned to benefit when the time comes.

🎯 Action Plan for Founders:

To make it easier for you to get started, we’ve created this detailed 5-step action plan.

Step 1: Incorporate as a Delaware C-Corp

📌 A Delaware C-Corp is beneficial for QSBS eligibility. 

It’s the preferred entity structure for venture-backed startups, and it keeps you compliant with investor expectations and IRS guidelines from day one.

If you’re still running as an LLC or foreign entity, convert now. The QSBS clock only starts ticking with proper C-Corp formation.

Step 2: Issue Founder Stock ASAP to Start the 5-Year Clock

The sooner you issue your shares, the sooner your five-year holding period begins.

No shares issued? No clock started. No tax break.

Formalize founder equity with board approvals, cap tables, stock certificates, and if applicable, file your 83(b) election immediately.

Step 3: Ensure Clean Records of Issuance & Valuations

QSBS eligibility hinges on clear, auditable documentation. That means maintaining airtight records on:

• Stock issuance dates

• Fair market valuations at issuance

• 409A valuations (if required later)

• Board resolutions and consents

Remember, sloppy paperwork today can result in lost tax benefits tomorrow.

Step 4: Review Current QSBS Status Annually

Your QSBS status isn’t “set it and forget it.” Review your eligibility every year, especially after:

• Fundraising rounds

• Major pivots

• Exits or secondary transactions

• Changes in use of funds or business focus

A quick annual check-in with a tax pro (like doola) can save you a fortune down the road.

Step 5: Work With Pros Who Actually Understand Startup Taxes

QSBS is niche. Founders working with generalist accountants often miss key steps, or worse, disqualify themselves without realizing it.

doola specializes in helping global founders, creators, and e-commerce entrepreneurs structure correctly from day 1.

We handle your incorporation, bookkeeping, filings, and ongoing compliance, so you don’t leave $75M on the table by accident.

Founder-Specific Advice: Where Are You Right Now?

Whether you’re still sketching ideas on a whiteboard or already scaling post-raise, there’s a strategic next move to ensure you don’t accidentally disqualify yourself from QSBS benefits.

Not every founder is starting from the same place. 

Here’s how to think about your next step based on where you are today:

Founder Type	Your Next Move
Pre-Raise / Early Stage	✅ Incorporate now as a Delaware C-Corp. ✅ Issue your founder stock ASAP. ✅ Start the 5-year QSBS clock
Post-Raise / Scaling	✅ Confirm if your stock already qualifies under QSBS rules. ✅ Review all stock issuance documents and valuations. ✅ Address any gaps with legal and tax pros (like doola).

Remember, QSBS is not automatic.

You can’t retroactively fix a missed opportunity five years from now when it’s time to sell and you’re staring down a tax bill you didn’t plan for.

Learn how doola can help you leverage QSBS.

How Founders Can Maximize QSBS With doola Tax Filing

doola Tax Filing is more than paperwork, designed to protect founders and unlock long-term upside.

Here’s how we help you make the most of QSBS:

• Incorporate your C-Corp in a QSBS-friendly state

• Support international founders establishing US entities

• Ensure ongoing compliance to preserve eligibility

It doesn’t just end there. doola is your partner at every step:

• Start your 5-year clock correctly

• Confirm your stock’s QSBS eligibility

• Maintain airtight year-over-year documentation

• Navigating tricky transitions (LLC → C-Corp, SAFEs, etc.)

After all, your tax strategy shouldn’t be an afterthought. And with doola, it won’t be. We understand founder tax needs, and we know how to protect your upside.

Ready to future-proof your tax strategy? Sign up with doola to get started today!

FAQs

When will the $75M QSBS cap take effect?

Expected for tax years starting 2025, pending final legislation.

Does this apply retroactively?

Not confirmed, likely prospective only.

Can I qualify if I convert my LLC now?

Yes, but timing affects your eligibility clock.

Is the $75M cap per taxpayer or per company?

Per taxpayer. Possibly cumulative across multiple companies.

What’s the difference between the old and new cap?

Old: $10M or 10x basis. New: Flat $75M cap.

How do I confirm my stock’s QSBS status?

Review with a tax advisor (or doola).

Can foreign founders take advantage?

Yes, through US C-Corps and proper planning.