In today’s episode of Adam Talks, Adam Bergman, Esq. discusses qualified small business stock and how you can receive a $10+ million tax exclusion when you sell your business.
How a Business Owner Can Save $10 Million+ in Taxes
Tax attorney and founder of IRA Financial, Adam Bergman, discusses a tax saving structuring concept called Qualified Small Business Stock (QSBS) that allows business owners to save over $10 million in taxes. Enacted all the way back in 1993, QSBS is a valuable concept that is not known to many entrepreneurs. The QSBS essentially says that if a business owner has a US C Corp stock with assets worth less than $50 million, they could exclude up to $10 million from taxes and plus ten times of what they invested after holding the stock for at least five years.
However, the QSBS only applies to certain businesses such as tech, retail, wholesale, and manufacturing, among others, that are deemed qualified trad or businesses and are not involved in the performance of certain services such as health, law, or consulting. Additionally, the stock must come from the company, not from another investor, and not from an LLC, S Corp, or partnership. The C Corp must be an active business, and the stock must be held for at least five years before selling.
Adam Bergman emphasizes the importance of understanding the requirements to qualify for QSBS and getting the valuation of the business to be less than $50 million before selling. He also suggests discussing the topic with a tax advisor, CPA, or tax lawyer to plan the structure and ensure that the business satisfies the definition of a qualified trader business.
Bergman notes that QSBS is a remarkable exclusion and a massive tax strategy that not enough entrepreneurs know about. It has been in the Code since 1993, and there hasn’t been a lot of chatter or debate about maintaining it or not. The opportunity is still valid, and C Corps are not as tax harmful as they were pre-2017 with a 21% tax rate.
Bergman concludes that entrepreneurs should consider QSBS when starting a business or looking at selling their C Corp after holding the stock for five years. By doing so, they can potentially save over $10 million in taxes, which is a monster opportunity. Finally, he reminds viewers to subscribe to his channel and enjoy the rest of their day.
To learn more about this amazing tax break, listen to the podcast!