Jun 5, 2026
A once-obscure Silicon Valley tax strategy is going mainstream — and it has already allowed wealthy Americans avoid $140 billion capital-gains taxes.
The strategy is known as QSBS, or “qualified small business stock.” It allows founders and investors to potentially escape 100% of federal capital gains tax on sales of stocks.
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The simple strategy requires individuals or companies to start or acquire a stake of a business with no more than $75 million in gross assets. They then need to hold onto the company or their shares for at least five years. After that, they can be sold and the seller will pay no federal tax on a massive portion of their gains.
There is a limit on the amount that can be shielded from taxes. Individuals can only protect $15 million, or 10 times their initial stake, from the Internal Revenue Service (IRS).
A growing tax-optimization trend
The provision was first introduced in 1993, but became even sweeter under the Trump administration. In 2025, the president signed the One Big Beautiful Bill Act, which expanded QSBS rules so that holders of stocks issued after July 4, 2025 could get a partial tax break if they cashed out as early as three years. It also raised the asset cap from $50 million to $75 million and increased individual benefits by $5 million.
The tax break is currently only available to companies incorporated as a domestic C corporation. It also excludes certain sectors, including personal services, finance, farming and hospitality.
“Clients absolutely love this idea,” Anneke Niemira, a managing director at NewEdge Wealth, told Bloomberg. “I have heard QSBS being discussed more in the last two years than I did in the previous 16 years combined.”
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How a once-obscure rule kept $140 billion in gains untaxed
Unsurprisingly, the tax break has garnered mixed reviews. The provision is meant to reward entrepreneurs and investors for taking the financial risk of starting or investing in new companies. Supporters argue it encourages business creation, growth and investment activity.
Opponents, however, argue it allows already wealthy people to eliminate portions of their tax bills entirely. Between 2012 and 2022, the tax provision allowed more than $140 billion worth of capital gains to go untaxed. The U.S. Treasury estimates the cost of the QSBS tax break, in the form of lost government revenue, will be $67 billion in the next decade.
There is also concern about stacking, a technique used to multiply the benefits by distributing business assets among tax payers. Take for example, a CEO who divides ownership of their company among their four children through trusts. The division means each person can claim a separate tax exclusion through QSBS. Now the head can exempt up to $15 million from taxes and their four children can exempt a combined $60 million, Bloomberg reporter Ben Steverman explained.
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The practice isn’t prohibited, though the Trump administration has said it will review the issue and attempt to limit or restrict stacking strategies.
There have been some attempts to scale back the provision. In 2021, House Democrats unsuccessfully issued a proposal to limit QSBS. The top Democrat on tax-writing, Richard Neal, has called for bipartisan talks on the exemption.
In the meantime, investors are looking to leverage the loophole, and its popularity has spread beyond Silicon Valley.
Quick quiz
What is the individual limit for capital gains shielded from taxes under QSBS?
“We’re seeing QSBS used by manufacturers in Ohio, logistics companies in Texas, IT providers in Florida and food brands in the Carolinas,” Charles Jimerson, an attorney in Florida, told Bloomberg. “QSBS has gone from cocktail party tax trivia to real boardroom strategy.”
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Rinna Diamantakos is an assigning editor at Moneywise.com. A versatile journalist, she has experience as a writer, editor and producer. Her work has focused on politics, business and financial news.
