Pay no federal tax when you sell your company, up to $10 million.
Most consulting businesses don't qualify as a Qualified Small Business, so your tax adviser may have concluded that your MSP or software company never will. That is likely wrong. Contact us for a second opinion. The first call is free.
One rule, a lot of nuance.
Under Section 1202 of the Internal Revenue Code, each shareholder of a Qualified Small Business Stock entity can exclude up to $10 million of federal taxable gain from the sale of their corporation's stock. Nearly all states align with the federal provision, so the income is usually exempt from state tax as well.
To qualify, the business has to maintain QSBS status for five years before the sale. Even a one-month lapse can reset the clock, which is why the small technicalities matter so much.
- An active U.S. C corporation
- Gross assets of $50 million or less when the stock is issued
- Stock held for at least five years
- Stock acquired properly, at original issue
- Stockholders who are not themselves corporations
- A business that doesn't depend on the owner's personal reputation or skill
- A qualified trade or business (consulting gets special attention)
- At least 80% of assets used in qualified activities
Summary only. Each line has exceptions and definitions; that's the part we do for you.
A $5 million sale, with and without planning.
Say you sell the stock of your qualified MSP or IT product company for $5 million, all cash at closing. The business has one owner, living and operating in Delaware.
That difference is why meticulous planning matters, and why it's worth protecting the benefit from minor technicalities.
Want to verify your eligibility?
We offer free consultations to owners of U.S.-based software, IT, and MSP companies. It's a chance to clear up any questions and confirm whether you meet the QSBS criteria. If you don't qualify yet, we'll walk you through the steps to get there.
We specialize in software, IT, and MSP businesses and we're experts in accounting, M&A, and CFO advisory. We know the pitfalls that lead other advisers to wrongly conclude you're ineligible.
Book the QSBS call
Thirty minutes with Dave. Bring your incorporation date, entity type, and a rough sense of your assets and revenue.
Learn how to qualify →