Qualified small business stock

Illustrates qualified small business stock and explores ways to qualify along with the potential for tax reduction and deferral.

by Todd Mayo, Senior Wealth Strategist, Advanced Planning Group 10 Apr 2023

For some business owners, federal tax laws offer sizable tax benefits. Notably, an individual, trust, or other noncorporate person who owns qualified small business (QSB) stock can potentially defer or exclude gain on the sale or disposition of the stock. They can generally defer gain by reinvesting it in other QSB stock, and they can generally avoid any income tax on any excludible gain. For many shareholders, the excludible gain is $10 million per company. For others, it’s more. Moreover, with proper planning (often involving trusts), a shareholder can stack (multiply) the exclusion, further enhancing the benefits of owning QSB stock.

For shares to qualify as QSB stock, they must satisfy an intricate array of company-level requirements and shareholder-level requirements.

Company-level requirements
For its shares to qualify as QSB stock, a company must be organized in the United States, and it must be classified as a C corporation.1 The shares of a company organized outside of the United States, thus, won’t qualify as QSB stock. Likewise, the shares of a company that’s classified as a partnership for federal income tax purposes also won’t qualify as QSB stock. For example, membership interests in a multi-member limited liability company won’t qualify as QSB stock if it’s classified as a partnership for tax purposes.2

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Purpose of this material.
The information on this page and in the attached document is provided for informational and educational purposes only. It should be used solely for the purposes of discussion with your UBS Financial Advisor and your independent consideration. UBS does not intend this to be fiduciary or best interest investment advice or a recommendation that you take a particular course of action.

No tax or legal advice.
UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your personal tax and/or legal advisors regarding your particular situation.

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