Here's the deal.

Most founders I know have heard of QSBS. Maybe 10% actually understand it. And probably 2% have it set up correctly.

That's a problem—because if you're building something real and you screw this up, it could cost you $15-20 million in taxes.

I'm not exaggerating. Let me show you the math.

On July 4, 2025, Trump signed something called the "One Big Beautiful Bill Act."

Buried inside was a massive upgrade to QSBS—Qualified Small Business Stock. It's Section 1202 of the tax code, and it just got way better.

Here's what changed for any stock issued after July 4, 2025:

The old rules:

The new rules:

This is massive. Let me translate:

The government just made it way easier and more valuable to build a C-Corp startup.

QSBS works like this:

If you meet certain requirements, you can exclude up to $15 million or 10x your cost basis (whichever is higher) from capital gains taxes when you sell.

On a $15M gain that would normally get taxed at 20-37%? You pay zero.

That's a $3-5.5 million tax savings on a single exit.

Here are the requirements:

That's it. Pretty straightforward.

But here's where it gets interesting...

This is brand new. Before July 2025, it was all or nothing: hold for 5 years or get zero tax benefit.

Now there's a sliding scale:

Hold for 3 years: 50% of gains excluded (you pay 15.9% effective tax rate)
Hold for 4 years: 75% of gains excluded (you pay 7.95% effective tax rate)
Hold for 5+ years: 100% of gains excluded (you pay 0%)

This is huge for founders who can't or don't want to wait the full 5 years.

Before: If you sold at year 4, you got nothing.
Now: If you sell at year 4, you get a 75% exclusion on $15M. That's over $11M tax-free.

Okay, here's where this goes from "nice tax break" to "holy shit."

You can stack these exemptions.

Each separate taxpayer gets their own $15M exemption per company.

So if you set up 4 trusts (each with a different beneficiary), every single one gets the full $15M exemption.

Let me show you:

Total: $75 million in potential tax-free gains.

That's not a typo. $75 million.

On a big exit, that's the difference between writing a $15-22M check to the IRS versus writing a $0 check.

Let's run an actual scenario.

Without QSBS optimization:

With QSBS optimization (5 entities, all post-July 2025 stock):

That's an $8.3 million difference.

This isn't theoretical. Founders are doing this right now. Here's how:

Step 1: Verify you're eligible

Step 2: Figure out your trust structure

Most founders I've talked to set up 5 total entities:

Each trust must have a different beneficiary. That's what makes it a separate taxpayer under IRS rules.

Some founders with bigger families set up 7-10 trusts. But 5 is the sweet spot for most people.

Step 3: Issue stock to the trusts NOW

This is critical: The trusts have to get the stock when it's first issued.

You cannot:

The trusts must acquire at original issuance. Which means you need to do this before your company is worth anything.

Step 4: Track everything separately

Stock issued before July 5, 2025: Old rules ($10M cap, 5-year requirement)
Stock issued after July 4, 2025: New rules ($15M cap, tiered structure)

If you have both, you need to track them separately. But the good news: you can use both. So theoretically you could exclude $10M of pre-July stock + $15M of post-July stock = $25M per entity.

Step 5: Get real attorneys

This is not a DIY situation. You need:

I'm talking about specialists here. Not your general corporate lawyer.

You SHOULD do this if:

You probably DON'T need this if:

Here's something that'll piss you off:

Not every state recognizes QSBS.

Even with full federal exclusion, you might still owe state taxes.

These states do NOT allow the QSBS exclusion at all:

Note: New Jersey used to be on this list, but as of January 1, 2026, they now conform to federal QSBS rules.

States with no income tax (so QSBS is just a federal question):

If you're in California and building something big, you're looking at potentially $10M+ in state taxes even with full federal QSBS exclusion.

The workaround: Set up trusts in Delaware or Nevada. These states have strong asset protection laws AND no income tax. Each trust can potentially avoid or defer state taxes.

But this adds complexity. You need legitimate business substance—not just a mailbox in Wilmington.

Mistake #1: "I'll deal with this later"

Later is too late. The trusts must acquire stock at original issuance. Once you've raised at a $50M valuation, you can't go back and restructure.

Mistake #2: Setting up grantor trusts

If you set up a grantor trust (where you're still treated as the owner for tax purposes), it doesn't count as a separate taxpayer. You need non-grantor trusts where each trust is its own taxpayer.

Mistake #3: Not tracking acquisition dates

If you can't prove when each trust acquired the stock, you lose the exemption. Keep meticulous records.

Mistake #4: Blowing past the $75M asset cap

The test is "at or immediately after issuance." If you raise a big round that pushes you over $75M, any stock issued in that round doesn't qualify.

Mistake #5: Being in an excluded industry

Real estate, financial services, farming, hotels, restaurants—these don't qualify. Make sure your business passes the "active business" test.

Legal setup:

Total upfront: ~$30-50K
Annual maintenance: ~$10-20K

Potential tax savings: $15-20M+

I'll take that ROI every single time.

PS - these numbers seemed huge to me. So instead of just going the normal path I started exploring more modern solutions. I came across Dynasty. They can get you set up starting at just $1500 per year… pretty wild. I think I’m going to give them a shot with my Trusts. Will report back…

The Big Beautiful Bill just handed founders a massive gift.

QSBS went from $10M to $15M per entity. The asset cap went from $50M to $75M. You can now get tax breaks after just 3 years instead of 5.

And with proper trust structuring, a founder can shield up to $75M in gains from federal taxes.

Most founders won't do this.

They'll tell themselves "I'll handle it when we're closer to an exit."

But that's exactly when it's too late.

QSBS only works if you set it up BEFORE you build value.

Worst case scenario: You spend $30-50K on legal setup and your company doesn't exit big. You're out the legal fees.

Best case scenario: You save $15-20M in taxes on the biggest payday of your life.

I know which side of that bet I'm on.

This is not financial advice. This is not tax advice. This is not legal advice.

I am not a tax attorney, CPA, or financial advisor. This article is based on my personal research and conversations with my own advisors regarding the One Big Beautiful Bill Act changes to Section 1202.

Every founder's situation is different. Tax laws are complex and constantly changing. State laws vary significantly.

You must consult with qualified professionals—specifically a tax attorney who specializes in QSBS and an estate planning attorney—before making any decisions.

Do not rely on this article for your specific situation. Get professional advice.