Qualified small business stock (QSBS) is a special type of stock that is offered by qualifying small businesses. The main benefit of QSBS is that it is eligible for a 50% exclusion from federal income tax. This means that if you hold QSBS for more than five years, you will not have to pay any federal income tax on the profits when you sell it.
QSBS is also exempt from the alternative minimum tax, making it a particularly attractive investment for high-income taxpayers. In order to qualify as QSBS, the stock must be issued by a domestic C corporation that meets certain size and revenue requirements. The company must also be actively engaged in a qualified trade or business.
If you are interested in investing in QSBS, there are a few things to keep in mind. First, the stock must be held for more than five years in order to qualify for the 50% exclusion. Second, the company must be actively engaged in a qualified trade or business. Finally, the maximum amount of QSBS that can be held in a taxpayer's account is $10 million per year.