QSBS Section 1202 Tax Exclusion Calculator
QSBS (IRC Section 1202) allows founders and early investors to exclude up to $10M or 10x invested capital in capital gains tax. With 100% exclusion, that saves $2.38M on a $10M gain.
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Frequently Asked Questions
How does QSBS Section 1202 work?
QSBS exclusion explained: Requirements: C-corporation at time of stock issuance; gross assets under $50M at time of issuance; active business in qualifying industry (not services like consulting, law, finance, hospitality); stock acquired at original issuance (not secondary market); held more than 5 years; US domiciled corporation; Exclusion amount: 100% exclusion for stock acquired after September 27, 2010; per-taxpayer exclusion: greater of $10M or 10x basis; example: invested $100K → if gain = $1M, excludes $1M (10x); if gain = $20M, excludes $10M (1M limit), pays tax on $10M; Stacking strategies: gift shares to family members (each has own $10M exclusion); grant stock options to employees (each has own exclusion); convert LLC to C-corp before funding (preserves clock); QSBS in trust: each non-grantor trust has own exclusion — "QSBS trust stacking"; State taxes: California does NOT recognize QSBS exclusion — pays state tax regardless; NY, TX, FL, WA recognize exclusion.
What is QSBS stacking and how does it multiply the exclusion?
QSBS stacking strategies: Basic stacking: gift shares to spouse, children, trusts before exit; each transferee has own $10M federal exclusion; family of 4 = $40M total exclusion; family of 4 + 4 irrevocable trusts = $80M total exclusion; Trust stacking mechanics: create multiple non-grantor trusts (IDGTs, SLATs, children's trusts); gift QSBS shares into each trust; each trust is separate taxpayer for QSBS purposes; each trust has own $10M exclusion; Revenue Procedure 2021-45: IRS confirmed trust stacking is valid; State law considerations: Nevada, South Dakota trusts popular for stacking (no state income tax + strong trust laws); California residents: must use out-of-state trusts carefully — CA taxes CA-source income; Timing: stacking gifts must occur while QSBS requirements are still met; shares must have been held 5 years by the trust (not just transferor); consult qualified tax attorney before implementing stacking strategy.
When should I work with a family office vs. private bank?
Family offices (single or multi) make sense at $50M+ in investable assets. Below that, private banking (JP Morgan Private Bank, Goldman Sachs PWM, UBS) offers similar services with lower minimums ($5-25M). Family offices provide consolidated reporting, direct deal access, and custom investment mandates unavailable at private banks. Multi-family offices (Bessemer Trust, Glenmede) offer a middle ground at $10M+ with family-office-level service at lower cost.
How much should ultra-high-net-worth individuals keep in cash?
Most wealth advisors recommend 3-5% of liquid net worth in cash/cash equivalents for UHNW individuals — enough to cover 12-24 months of lifestyle expenses plus opportunistic investments. Excess cash above this benchmark costs 5-8% annually in opportunity cost vs. diversified portfolios. Treasury bills, money market funds, and short-duration bonds provide liquidity with yield while maintaining capital preservation objectives.
QSBS Section 1202 Tax Exclusion Calculator — 2026 Guide
QSBS (IRC Section 1202) allows founders and early investors to exclude up to $10M or 10x invested capital in capital gains tax. With 100% exclusion, that saves $2.38M on a $10M gain. Sophisticated wealth planning requires understanding the interplay of investment returns, tax efficiency, legal structure, and generational transfer. High-net-worth individuals who work with dedicated wealth advisors typically outperform self-managed portfolios by 1-3% annually after fees — a significant difference at scale.