Exciting Changes to Come for Small Business Stock Tax Breaks

As a part of making tax matters more favorable for small businesses, the One Big Beautiful Bill Act (OBBBA) introduces significant tax benefits. Entrepreneurs will want to keep July 4, 2025, in their calendars, as this date marks the enactment of revised requirements for stock issuance under the expanded tax benefits.

The Historical Progression of QSBS Tax Breaks

The journey of qualified small business stock (QSBS) tax breaks has seen its share of evolution since its inception in 1993. Initially, the exclusion allowed for 50% of the gain from the sale of QSBS, and over the years, it has increased to a permanent 100% exclusion due to the PATH Act of 2015. This tax break isn’t automatic, it requires specific conditions to be met, such as being a C corporation and having at least 80% of assets used in active trades or businesses.

Key Changes Under the OBBBA

The new legislation introduces three notable changes that entrepreneurs are likely to appreciate:

• Reduced Holding Period for Tax Exclusion: Now, investors and business owners can enjoy partial tax exclusion with shorter holding periods. Stock held for at least three years can qualify for a 50% exclusion, four years for 75%, and the 100% exclusion remains after five years.
• Increased Stock Issuance Cap: Previously, stock issuance was capped at \(10 million, but the OBBBA raises this limit to \)15 million, offering more room for capital growth.
• Expanded Qualification: More businesses can now qualify for the QSBS tax incentives with the “small business” threshold rising from \(50 million to \)75 million in assets.

Benefits Ensure a Silver Tax Lining

While these changes bring promising benefits, portions of gains that aren’t covered by exclusions will still be taxed. However, if stocks are held over a year, they will be taxed as long-term capital gains at favorable rates.

Guidance for Small Business Owners

Given these developments, small business owners must consider all factors, not just tax implications, when deciding on issuing and acquiring Section 1202 stock. A personalized consultation can be vital in making informed financial choices that align with family and company goals.

According to CPA Practice Advisor, these legislative modifications not only support growing businesses but offer new strategic opportunities for long-term financial planning.

Engage with these exciting updates and ensure your business is well-positioned to harness the new benefits under the OBBBA. Whether you are a seasoned entrepreneur or just getting started, the revised tax regulations represent a significant opportunity for growth and savings.