QSBS

QSBS stands for Qualified Small Business Stock, a provision under US tax law that allows investors in eligible small businesses to exclude a significant portion of capital gains from federal taxes when selling shares held for more than five years. It is designed to incentivise investment in early-stage companies. The exclusion can apply to gains up to $10 million or ten times the investor's cost basis, whichever is greater.

An investor who puts $500,000 into a qualifying startup may be able to exclude all gains up to $5 million from federal capital gains tax when they eventually sell their shares. This makes QSBS a powerful tax planning tool for angel investors and venture capitalists. While more relevant to long-term investors than active traders, understanding QSBS is valuable for traders who also hold early-stage equity positions as part of a broader investment portfolio, as it can significantly impact after-tax returns.