The XYZs of QSBS: A Practical Guide to Qualified Small Business Stock

I often reflect on the many hundreds of meetings I had with founders between 2013 and 2017. They were mostly held at countless WeWork and Le Pain Quotidien locations, or similar types of spots. And at some point, in every one of those meetings, I'd inevitably ask the same question: "Have you ever heard of QSBS?" The question was almost always met by the same blank stare and accompanying short reply: "What is QSBS?" Thankfully, those days are gone and most founders understand the concept of qualified small business stock (QSBS).

Back then, QSBS was "newish." Remember, the 100% exemption for QSBS-eligible stock only came into existence on September 27, 2010. From that date forward, any eligible C-Corp stock acquired via original issuance (meaning you need to acquire it directly from the company and not in a secondary transaction) would pay a 0% federal tax rate (and potentially 0% state tax, depending on the state) on the greater of the first $10 million or 10 times their basis – as long as they hold onto the stock for at least five years. I suppose in hindsight, it's not unusual that so few people in my founder’s meetings had heard of QSBS, since no one had even hit their original five-year hold period until the end of 2015. And the reality is, even if they did, many people didn't know that the stock in their start-up was QSBS eligible. It was a wildly fun time to be teaching and learning.

Fast forward to today, and it seems like founders are endlessly bombarded by hyped information about QSBS. It comes from all directions. TikTok. Advisors. Friends. Board members. Other founders. ChatGPT. It's all likely well-meaning and well intentioned. But the info is often generic, exaggerated and not custom or specific to the person hearing about it. And it's not accountable to the founders or their life goals and value system. And like many interesting ideas, plenty of industry jargon has been borne to explain the various, less-understood features. The most popular amongst the words to describe these features – are words like "stacking" and "packing," which are more often related to a kid and his blocks, or getting ready for a vacation. Echo chambers can be funny.

Navigating QSBS in real life

At Corient, we use plain and understandable language, contextualized around easily relatable goals tailored to your needs and wishes. We ask targeted questions like:

• Would you be interested in learning how to possibly multiply your QSBS exemption, so you potentially get more than the typical $15 million exemption?
• Would you like to learn how to elongate your hold period and potentially stretch to the five years and get the QSBS exemption?
•  Did you start the company as an LLC or C-corp? It may impact your stock's basis, and you might qualify for more than the $15 million exemption.
  

It feels like there are endless articles and information to explain the basics of QSBS – the "ABCs” of QSBS, if you will. But there’s very little about the actual experience of navigating QSBS in real life and real time. Interacting with the trusts you created to live your lifestyle, buying your dream home, helping your parents, and donating to charities, we call those elements the “XYZs” of QSBS. They are the practical applications, not just the technical jargon.

Having helped 100+ founders navigate this complex topic, we've pretty much experienced it all. Various non-grantor trusts. 1045 exchanges. QSBS memos. Basis analyses. We haven't just hypothesized and talked about these ideas. We've helped countless founders learn, implement and live with these strategies, structures and techniques. The most crucial point though, is that they are the result of conversations – not the goal of the conversation.

We begin our discussion to focus on what they are optimizing for, and then have more in-depth discussion to make sure they understand the pros/cons and the nuances of how these things work. To presuppose that everyone simply wants to optimize for the most tax savings possible, is a one-size-fits-all strategy that seems like an assembly-line approach. Imagine optimizing tax savings on a $50 million exit, but then the way you’ve structured your trusts leaves you feeling oddly "poor" on a day-to-day basis without affording a vacation or even go to a nice dinner. That could potentially be an unintended and unfortunate consequence of QSBS planning when the sole focus is on optimizing tax mitigation. 

QSBS is an extremely powerful part of the tax code. And it got only stronger on July 4, 2025, when the One Big Beautiful Bill Act was signed into legislation. The federal tax exemption was lifted from $10 million to $15 million per tax payor, and the required holding period now has a sliding scale of exemption, starting with 50% at year three and 75% at year four, while maintaining the current 100% at the existing five-year mark. 

So, while it may seem the founder is hearing about "stacking" and "packing," we also like to ensure there’s a voice in their other ear reminding them that with great power comes great responsibility. We have no issue with optimizing tax mitigation but think it's our role to help provide the pros and cons of various strategies.   

Speak with a Corient Wealth Advisor to learn more about QSBS and how to build a business exit strategy that’s suitable for your particular circumstances.

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