The Playbook
The Founder's Guide to Tax-Free Exits
Section 1202 can exclude up to $10 million (or 10x basis) of capital gains from federal tax. But qualification requires meeting specific rules across multiple IRC sections. Here's what you need to know.
The 5-Year Holding Period
IRC 1202(a) requires holding QSBS for more than 5 years. When your clock starts depends on stock type and how you acquired it.
The 83(b) Election Guide
Filing an 83(b) election within 30 days of a restricted stock grant starts your holding period immediately rather than at vesting.
Do You Need an Opinion Letter?
A tax opinion letter documents your QSBS eligibility analysis and can provide penalty protection under IRC 6662 if challenged.
ISO Exercise & QSBS
For stock options, the QSBS holding period begins at exercise, not grant. Understanding the timing is critical for meeting the 5-year requirement.
Founders vs. Employees
Founders typically acquire stock at incorporation while employees acquire through options. Each path has different QSBS implications.
California & State Non-Conformity
California, Pennsylvania, New Jersey, and Mississippi do not conform to IRC 1202. Federal exclusion does not eliminate state tax in these states.
The Founder Stack
Cap table management, banking, and legal tools that help maintain proper documentation for QSBS compliance.
Need Professional Guidance?
Section 1202 eligibility involves multiple IRC provisions and fact-specific analysis. Consider consulting a tax professional for your situation.
Find a QSBS AdvisorGet matched with a tax attorney or specialist CPA.