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Definition of Qualified Small Business Stock (QSBS)

Qualified small business stock (or QSBS) refers to shares of a qualified small business, as defined in Section 1202 of the Internal Revenue Code. QSBS receives very favorable capital gains tax treatment for investors if both the investor and the small business meet certain requirements. Startup founders and early stage startup investors can potentially use QSBS to pay no capital gains taxes on up to $10M of capital gains (and potentially even more, depending on the circumstances), provided they meet certain statutory requirements.

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