Small businesses are the backbone of the American economy. According to the Small Business Administration, small businesses account for 99.7% of all businesses in the United States and employ half of the American workforce.
Qualified small business stock (QSBS) is a special type of stock that is offered by small businesses. The key benefit of QSBS is that it allows investors to defer taxes on their capital gains.
QSBS is offered by businesses that meet certain qualifications, including:
- The company must have been in business for five years or more.
- The company must have gross assets of $50 million or less.
- The company's stock must be held by individuals (not corporations or partnerships).
If you are interested in investing in QSBS, there are a few things you should know. First, the stock must be held for at least five years in order to qualify for the tax deferral. Second, you can only invest up to $10,000 per year in QSBS (or 10% of your adjusted gross income, whichever is lower).
Qualified small business stock can be a great investment option for investors who want to support small businesses and enjoy some tax benefits as well.