Imagine selling your startup for $15 million and paying nothing in federal taxes? This is what QSBS makes possible. 

For startup founders and early investors, the Qualified Small Business Stock (QSBS) can make the difference between paying millions or paying nothing at all.

Let’s break down how QSBS works, the new changes in the law, and the mistakes that cost founders millions.

How QSBS Works

To qualify, several requirements must be met:

• Entity – The company must be a C Corporation.

• Industry – Most tech, manufacturing, and innovation-driven companies qualify. Service firms like law practices and banks do not.

• Assets – Stock must be acquired before the company has $75 million in assets (previously $50 million).

• Holding Period – Shares must be held for a minimum of 3–5 years.

If you meet these criteria, the exemption is powerful:

• 3 years = 50% tax-free

• 4 years = 75% tax-free

• 5+ years = 100% tax-free

Why QSBS Matters

Under the old rules, founders could exempt up to $10 million in capital gains. The new “Big Beautiful Bill” raises that limit to $15 million per taxpayer.

For example, in New York City where combined state and federal taxes approach 40%, selling a $15M business without QSBS could mean a $6M tax bill. With QSBS, that bill drops to $0.

What About LLCs and S Corps?

If you started as an LLC or S Corp, you can still benefit. Converting to a C Corp resets the holding period, but it also sets a baseline valuation that can multiply your exclusion.

Example: Alessandra Chester’s company converted at a $14M valuation. Because of QSBS rules, that created $126M in tax-free eligibility spread across the ownership group.

How Trusts Multiply QSBS

QSBS is applied per taxpayer. That means each trust is eligible for its own exemption.

• One founder = $15M tax-free.

• Four family trusts = $60M tax-free.

• The CEO of Roblox famously set up 12 trusts and sheltered $120M in gains.

With the right planning, founders can create generational wealth that stays outside the reach of federal taxes.

Common Mistakes Founders Make

❗ Starting too late: Waiting until you have a term sheet or letter of intent is usually too late to set up QSBS planning.

❗ Starting too early: Some founders jump into a C Corp before they have a viable exit plan, missing out on tax benefits of LLCs or S Corps along the way.

❗ Not checking qualification: Many assume their business won’t qualify. A simple review by a CPA or tax attorney could reveal otherwise.

Why QSBS Exists

The government designed QSBS to encourage innovation. Instead of funding startups directly, it incentivizes private founders and investors with tax breaks.

It’s the same principle as bonus depreciation for real estate: tax policy is used to drive private investment where the government doesn’t want to build.

Bottom Line

QSBS is the greatest tax exemption available to entrepreneurs. Done right, it can turn a multi-million-dollar tax bill into nothing.

The key is timing. Don’t wait until you’re weeks from selling to figure this out. Work with a CPA early, explore whether converting to a C Corp makes sense, and consider whether trusts can multiply your exemption.

Get it right, and you could save millions. Get it wrong, and you could miss the opportunity of a lifetime.

Listen to the full episode now.

Transcript

Part 1: Introduction to QSBS

[00:00:00] Mike: Ever wonder how some entrepreneurs sell their companies and walk away with $0 in federal taxes? It's not magic. It's QSBS. And today we're breaking it all down with someone who knows the space inside and out. Meet Lexander Chester, founder of Get Dynasty, a tax strategy firm helping high growth founders and investors turn opportunity into generational wealth.

[00:00:20] We're talking loopholes, legislative updates from the big, beautiful bill and more. Buckle up because this is the tax hack every startup founder needs to hear.

[00:00:47] Mike: So Alessandra, welcome to the show.

Alessandro: Thanks for having me, Mike.

[00:01:00] Mike: To get started, there might be a lot of business owners, founders, or people who plan to be future founders listening, and they may have never heard of QSBS. So give us a general lay of the land. What is it? Who does it apply to? And where can it be beneficial?

Part 2: What QSBS Is and Who Qualifies

[00:01:06] Alessandro: QSBS is what we call the greatest tax exemption that exists. It stands for Qualified Small Business Stock. It's applicable to startup founders, early employees, executives, and investors.

Anybody who holds shares in a qualified small business has what they call qualified small business stock. To qualify, you have to acquire the shares in the small business before the company has $50 million on its balance sheet.

The company has to be a technology business, not a services business, and you have to hold the stock for at least five years. There are a couple of other qualification criteria, but as long as you qualify, you can get up to $10 million in tax free capital gains.

With the new bill signed, the rules have changed a little bit, and I know we're going to get into that. But for most companies that already exist, it's up to $10 million in tax free capital gains. Depending on the state you live in, your state may also recognize QSBS. So not only would you get that on the federal side, but you may also potentially get it on the state side as well.

[00:02:35] Mike: That makes sense. So when you're looking at a business owner or an initial employee of a startup organization who has some stock options, give me the basic understanding of what needs to be done to qualify.

You mentioned if you're a service-based business, this wouldn't apply to them. Most of the time we're looking at a software type company, but it doesn’t necessarily have to be software. Could it be like a manufacturing company that would qualify?

Part 3: Industries That Qualify and Don’t

[00:03:10] Alessandro: It's not about who qualifies, it's about who doesn’t. Specific industries don’t qualify, like banks, law firms, and highly regulated service businesses.

What regulators are trying to do is spur technology and innovation. So primarily this is for startup companies—technology-based, venture capital funded startups. Those are the main companies that benefit.

Manufacturing companies can qualify, especially those using technology to create efficiencies.

For businesses unsure whether they qualify, specific accounting firms, law firms, and service providers like my old employer, Carta, will analyze your company, balance sheet, and QSBS rules to determine eligibility.

For most companies utilizing technology, with less than $50 million on the balance sheet, they fit right in the sweet spot. You have to hold the stock for at least five years before you sell. If you do that, you qualify for the exemption.

[00:04:56] Mike: That’s great. A lot of people might be hearing this and thinking, “Okay, I’m looking to sell my business in the next 3, 5, 10 years.” But they’ve never heard of QSBS before. Or maybe they have but never thought it applied to them.

Let’s say they find out it is applicable, but they’ve been running as an LLC or S Corporation for 5, 10, 15 years, and they have an exit point maybe 10 years down the road. Is there any opportunity for them, since they weren’t originally organized as a C Corp, to still take advantage of this strategy?

Part 4: Converting From LLC or S Corp

[00:05:25] Alessandro: Absolutely. We actually started as an LLC and flipped into a C Corp when we did our first round of venture capital financing. You can get even more benefits if you do it that way because when you flip to a C Corp, especially during a priced venture capital round, the pre-money valuation becomes your contributed value.

For us, the pre-money valuation was $14 million. The rule is either $10 million in tax free capital gains or 10 times your contributed value. In our case, 14 times 10 is 140. Subtract the original $14 million valuation, and we ended up with $126 million worth of QSBS eligibility.

We divided that among three owners, each with about $42 million of QSBS eligibility. This was possible because we flipped from an LLC to a C Corp.

There is a trade-off, since operating as an LLC or S Corp has tax advantages. But if you plan to sell your company, qualifying for QSBS could outweigh those benefits.

The five-year clock does restart when you flip to a C Corp. But under the new rules, you no longer have to hold for five years. You can hold for three years and get a 50% exclusion, four years for 75%, and five years for 100%.

[00:08:30] Mike: That’s a great point. We often see small business owners on TikTok being told every business should be organized as a C Corp. But many don’t have a valuation yet and won’t sell for decades. They can start as an LLC or S Corp, benefit from those structures, and later convert when it makes sense to set up for a tax-free exit.

[00:09:13] Alessandro: Exactly. If you’re going to do that, give yourself at least three years, ideally five, to maximize the exclusion. The rules have also increased the exclusion amount from $10 million to $15 million for new companies going forward. Plus, flipping to a C Corp gives you 10 times the contributed value, so the gains can really stack up.

Part 5: Should You Flip to a C Corp?

[00:10:05] Mike: Let’s say someone has been operating as an S Corp for 20 years and now plans to sell in the next 5–10 years. If they’re a qualifying business, is there any reason not to transition to a C Corp for QSBS?

[00:10:30] Alessandro: The main reason to stay as an LLC or S Corp is to avoid double taxation. But if the gains from selling are significantly more than the current tax benefits, there’s no other reason not to flip.

From my experience, it was actually more complicated to operate as an LLC. We couldn’t hire employees directly or offer benefits. Once we flipped, everything integrated smoothly into HR platforms. For venture-funded startups, a C Corp makes more sense.

If you’re not planning to sell or go public, then staying as an LLC or S Corp is fine. But if you are, you need to analyze whether the future QSBS benefit outweighs today’s tax savings.

Part 6: Big Beautiful Bill Changes

[00:12:30] Mike: Let’s talk about the changes from the new bill and how QSBS was impacted.

[00:12:47] Alessandro: Three big changes:

1. Exclusion raised – From $10 million to $15 million for stock issued after July 4, 2025.
   
   
2. Holding period shortened – Three years = 50% exclusion, four years = 75%, five years = 100%.
   
   
3. Asset threshold raised – From $50 million to $75 million.
   
   

For example, someone in New York with $15 million in gains would normally pay around 40% in combined federal and state taxes. With QSBS, they save about $6 million in taxes.

[00:15:03] Mike: And those shorter holding periods are huge, especially for people selling quickly.

[00:15:18] Alessandro: Exactly. It makes QSBS accessible to more businesses and employees. It’s already the greatest exemption in the code, and now it’s even better.

Part 7: Why the Government Offers QSBS

[00:15:18] Alessandro: The idea behind QSBS is to stimulate small businesses and make it easier for them to raise capital. It encourages investors and fuels innovation. It also makes the United States more competitive and attractive to talent.

[00:17:15] Mike: A lot of small business owners feel like tax planning is cheating the government. But all we’re doing is using code that’s there for a reason. The government wants us to build businesses, so they incentivize it. It’s like bonus depreciation in real estate. The government doesn’t want to build houses, so they give private investors a tax break to do it. QSBS works the same way for startups.

Part 8: How Get Dynasty Helps

[00:18:21] Mike: Talk to us about what Get Dynasty does and what the process looks like for a founder.

[00:18:46] Alessandro: We help people create trusts to expand QSBS eligibility.

If you’re already a C Corp, you’re usually locked into the $10 million exclusion. But because the rule is $10 million per taxpayer, you can create multiple trusts—for children, parents, siblings, even future children. Each trust gets its own exclusion.

Four trusts = $40 million in tax-free gains.

We provide a full solution: trust creation, administration, annual tax returns. We’re a licensed Nevada trust company and we use technology to keep costs low. Compared to traditional firms, we charge less than 5% of the normal cost.

Even though shares are gifted to a trust, the founder still controls how the assets are invested. That’s why trusts are powerful—you can direct them to invest in real estate, your next startup, or whatever you choose.

[00:21:12] Within a few months of launch, we already have 40+ founders signed up.

Step one is figuring out if you qualify. If you do, we can help you set up trusts. If you’re unsure, we connect you with providers who do a full QSBS analysis.

For later-stage companies, you also need to consider the lifetime gift exemption. In 2025, that’s $14 million. When you gift shares to a trust, you use part of that exemption. Working with a CPA ensures you balance how much to gift now versus saving exemption for future planning.

Part 9: Trust Timing and Rules

[00:23:00] Mike: When you start a trust, does the five-year clock start over?

[00:23:06] Alessandro: No, it rolls into the original holding period. If you’ve already held stock for five years, you can create a trust and still sell soon after.

But the best time is early—when shares are worth little. That way you preserve your lifetime exemption and avoid raising IRS red flags.

Part 10: Common Mistakes

[00:23:38] Mike: QSBS sounds great, but people often rush in without understanding. What are the most common mistakes you see?

[00:24:10] Alessandro: The biggest mistake is waiting too long. Founders call us the week before a venture round closes and expect to set this up overnight. By then, it’s too late. Planning should happen months or years in advance.

[00:25:02] Mike: On the other hand, some people jump in too soon. They start as a C Corp before they even have a product or investors, planning for an exit that may never come. They give up LLC or S Corp benefits without ever using QSBS.

It’s a balancing act—prove the business first, then plan the exit

Part 11: When QSBS Makes Sense

[00:25:30] Alessandro: The first question is, are you going to build a bootstrap profitable business or are you going to raise outside capital?

If you raise outside capital, you won’t be taking profits—you’ll reinvest everything. In that case, there’s no tax advantage to being an LLC or S Corp. A C Corp makes sense.

If you’re building a bootstrap, cashflow-positive business, then an LLC or S Corp is usually better. But once you start thinking about an exit, that’s when it makes sense to flip to a C Corp.

[00:27:04] Mike: Exactly. Don’t be too late—don’t have a letter of intent on the table and only then call Get Dynasty. But don’t be too early either.

Alessandro: Right. Don’t be too early and don’t be too late.

Part 12: Success Stories

[00:27:18] Mike: This has been great. Before we wrap up, can you share a success story where QSBS played out well?

[00:27:42] Alessandro: Two examples.

The first was my old CEO. He created four trusts and sold $40 million worth of tax-free capital gains. That’s when I realized how powerful this strategy was. At the time it cost hundreds of thousands to set up, which made it inaccessible to most founders. That’s why we built Get Dynasty—to make it affordable for everyone.

The second is public: the CEO of Roblox. He created 12 trusts early on, before the company had value. When Roblox went public, he sheltered $120 million in tax-free gains. That’s the kind of generational wealth QSBS makes possible.

[00:29:32] By setting up trusts early, you can gift shares out of your name at little or no value, avoid gift taxes, and preserve your lifetime exemption. Later, when the company grows, those trusts can hold enormous tax-free gains.

[00:30:08] Mike: If you thought tax law was boring, Alessandra just proved otherwise. Whether you’re dreaming of a future exit or advising clients, QSBS could be the single most important strategy you’re not using.

Huge thanks to Alessandra from Get Dynasty. Check them out at getdynasty.com. And don’t forget—planning early can be the difference between paying millions or paying nothing.

If you want help from our team of tax pros implementing this and other strategies, visit taxelm.com for a free discovery call. We’re helping people legally lower their tax bill every day.

[00:30:56] Alessandro: Thanks for having me.