Videos

QSBS: The Tax Break Founders Don’t Fully Understand

We talk to founders regularly who have heard of QSBS, know the $15 million number, and have mentally checked that box. Most of them haven’t thought through how many things have to go right between now and an exit for that benefit to hold.

A poorly timed stock redemption. A business model shift that edges into a restricted industry. New shares issued after the company’s balance sheet crossed a threshold nobody was watching. Each of these can disqualify equity that looked clean the day it was issued, and in most cases, nobody catches it until the term sheet is already signed.

The OBBBA changed the rules significantly in July 2025, and the new structure creates real planning opportunities for founders who are paying attention. We put together a video that walks through what the current rules require, where eligibility breaks down, and how the stacking strategies that can multiply the benefit are supposed to work.

If you have equity you expect to be worth something significant, watch it before your next funding round.

Transcript

If you sold your company tomorrow, do you know what you’d owe in taxes? Most founders think they do. They’ve heard about QSBS and they know the $15 million number and they filed it away as something their lawyer is handling. What they’re usually missing is how many things have to go right for that benefit to hold and how fast it disappears when one of them doesn’t.

I’m Dan Magier, a Partner and Managing Director at Next Capital Management. This video covers what QSBS requires where founders run astray and why the gap between having this benefit and preserving it is wider than expected. Qualified small business stock known as Section 1202 of the tax code is one of the most significant tax benefits available to company founders.

If your equity qualifies and you’ve held it long enough, you may be able to exclude a substantial portion of your gain from federal capital gains tax entirely. Here’s how the numbers work under current law. And yes, the exact calendar date dictates your entire strategy.

How Did the QSBS Rules Change for Stock Issued After July 4, 2025?

For stock issued after July 4th, 2025, the game has changed. Your lifetime exclusion cap is now $15 million or 10 times your adjusted basis. Under these new rules, you no longer have to wait a rigid five years to see a benefit.

The law now offers a graduated schedule. Hold for three years and 50% of your gain may be excluded. Hold for four years and that rises to 75%.

And if you cross the five-year mark, you can potentially exclude 100% of your gain up to the cap. But those early exits come with a catch. The unexcluded portion of your gain is taxed at a 28% rate.

And when you add the net investment income tax, your effective federal rate looks more like 15.9% for a three-year hold. That rate drops to just under 8% for a four-year hold. It’s a massive discount compared to a standard asset sale.

What Are the QSBS Rules for Stock Issued Before July 2025?

But the math is complex. For stock issued before that July 2025 cutoff, the old rules apply. That means a strict $10 million cap and an all or nothing five-year hold with no partial credit.

What Is the Most Common QSBS Eligibility Mistake Founders Make?

The most common mistake I see founders make with QSBS is assumption. Founders who built venture-backed C-corporations assume they qualify. Sometimes they do, but other times something shifted along the way and nobody caught it.

What Is the QSBS Gross Asset Test?

Take the gross asset test. For stock issued under the current rules, your company’s gross assets at the time of issuance had to be under $75 million. For older stock, that limit was $50 million.

But here’s the trap. That limit is based on the tax basis of the assets on your balance sheet. Your company’s market valuation does not change this number.

How Can Funding Rounds, Acquisitions, and Option Exercises Affect QSBS?

A significant capital raise or acquisition of a small competitor can push your balance sheet over that threshold in a few weeks. If new shares are issued after that limit is crossed, including through option exercises, those specific shares may not qualify. This means early employees are often hit the hardest.

What Is the QSBS 80% Qualified Business Requirement?

The gross asset test is just one place this comes apart. At least 80% of the company’s assets also need to be deployed in a qualified business throughout the entire holding period. And that requirement has to hold for as long as you own the stock.

Which Industries Are Excluded From QSBS?

Certain industries are explicitly excluded from QSBS, such as law, health, financial services, and consulting. Shifting your direction to target a new market is a normal part of scaling a business. If that new revenue stream pushes your company into one of these restricted categories, it can completely eliminate the tax exemption on your shares.

How Can Stock Redemptions Affect QSBS Eligibility?

Then there’s the redemption trap. If the company repurchases stock from any shareholder within a certain window, generally one year before or one year after a new issuance, that single transaction can disqualify the new shares for everyone on the cap table. Founders frequently use redemptions to clean up messy cap tables or to provide quick liquidity to a departing executive.

It rarely occurs to anyone in the room that it might affect the next funding round. We’re going to spend an entire video on this topic because the list of ways founders lose eligibility is long. Stacking, which in my opinion is the part most people miss.

What Is QSBS Stacking?

Protecting your own shares is the foundation, but Section 1202 goes further than a lot of founders realize. There’s a gifting provision built into the law that allows you to transfer qualified stock to another person or entity. And when you do, that recipient gets their own separate $15 million exclusion on top of yours.

Imagine a founder who sets up three independent trusts before a sale, creating one for their spouse and one for each of their two children. The family now has four distinct exclusions. That means the total federal tax exclusion could climb from $15 million to $60 million.

When Should Founders Consider QSBS Gifting and Trust Planning?

The final outcome depends on your timeline and the exact legal structure. The timeline for this type of gifting is critical. It works best in the early stages of your company when the share value is still low.

Gifting shares at a low valuation means you use very little of your lifetime gift tax exemption. If you wait until a term sheet is already on the table, the shares are worth far more, which limits your options. This type of planning requires active coordination between your legal counsel and your wealth advisor from the beginning.

Do All States Recognize the Federal QSBS Tax Exclusion?

All that trust planning assumes the federal exclusion is the whole story. And for most founders it is, but QSBS is a federal benefit and each state sets their own rules on whether they recognize it. The majority of states conform to the federal treatment, but California does not.

How Do California and New Jersey Treat QSBS?

A California-based founder may owe state capital gains tax on gain that is fully excluded at the federal level. New Jersey recently changed course and now conforms for tax years starting in 2026. Check with your attorney to ensure that you comply with your state’s requirements.

Why Does QSBS Require Ongoing Coordination?

For founders in non-conforming states, the federal savings are still worth protecting. A full exclusion on a $15 million gain at a 23.8% federal rate is a substantial number, but the tax picture looks different than it might appear on paper and you should know it before you plan around it. Founders getting the most from QSBS are treating it as an ongoing coordination problem.

Every funding round, every cap table change and every shift in business model is a moment when something can go right or wrong. In many cases, the people who would catch an issue are not talking to each other in real time. The attorney drafts the redemption agreement and the CPA finds out about it a year later during tax prep.

What Should Founders Review Before a Business Exit?

By then the damage is done. In the next videos in this series, we’ll discuss ways founders lose eligibility and how to use a rollover strategy to carry the benefit into your next venture. If you have equity that you expect to be worth something significant at exit, understand where you stand before your next move, not after it.

At Next Capital, we work with founders on this kind of planning and you can connect with us through the link below.

The Citizen Heir: Raising Responsible Stewards of Family Wealth

There is a phrase that crosses every culture and every generation of wealth: “shirtsleeves to shirtsleeves in three generations.”

Most families have heard some version of it; fewer stop to ask why it keeps proving true.

I recently recorded a short video exploring an idea I’ve been thinking about for a long time. I call it the Citizen Heir. The core of it is that raising a responsible heir and being a good citizen draw from exactly the same source. Both are forms of received responsibility, and both deteriorate when privilege loses its connection to obligation.

Families who break the shirtsleeves cycle treat the preparation of their heirs as seriously as the management of their assets.

Transcript

Successful families right now are struggling mightily to raise their kids to be productive, moral people in an Instagram, me-first world. The question I keep hearing from parents who are serious about it is, “Where do you turn when achievement gets measured in dollars and likes?” The stories of ruined generations are as old as time itself. There’s even a phrase for it, “shirtsleeves to shirtsleeves in three generations.”

Every culture has a version of that saying, and they all mean the same thing. The question I keep coming back to: Why do some families break that pattern when so many others don’t? The ones who do almost always took seriously something harder than drafting a good estate plan. They took seriously the job of raising a good heir.

Introducing the Citizen Heir

I’m Frazer Rice. I work with families navigating significant financial complexity at NextVantage and today I want to share a concept I come back to constantly in those conversations. I call it the Citizen Heir.

Why Citizenship Matters in Family Wealth Planning

Citizenship has been on my mind a lot lately, especially with America’s 250th birthday coming up. We live in divided times and the discourse around civic responsibility has suffered for it. Many people feel that core ideas and institutions are no longer worthy of their trust.

We’ve become loose from our moorings. That might sound like a political observation, but it’s actually a family one. Because when you strip away the noise, what families with significant wealth are really trying to do is transmit values alongside resources, and that’s exactly where most of them run into trouble.

They get very close to the money and somewhere in the process they forget the value part. Here’s the connection I keep making: a good citizen and a good heir are operating under the same moral logic.

How a Good Citizen and a Good Heir Share the Same Moral Logic

A good citizen doesn’t treat rights as pure entitlement. They understand they’ve received something they didn’t fully build. It could be a society, a tradition, a set of institutions, and yet they are responsible for what they do with it.

A good heir works exactly the same way. Wealth isn’t a possession, it’s a trust. In Jewish, Christian, and Islamic traditions, this idea is ancient.

Wealth is treated as something given for service, not self-indulgence. A faithful person uses what they receive with humility, with charity, and with accountability. The good heir honors the giver by using the inheritance wisely.

Inherited Wealth As Stewardship, Not Entitlement

Both are tests of whether a person can handle a gift without becoming enslaved by it. Politically, a good citizen sustains the Republic not just by obeying laws, but by defending institutions and resisting the pull toward passive entitlement. A good heir does something analogous within a family.

They preserve capital and avoid waste. They use resources in ways that strengthen something larger than themselves over time. In both cases, the person is a custodian of an order that predates them and should outlast them.

Citizenship without duty is just a passport. Inherited wealth without responsibility is just a balance. Both require something from the person holding them or they stop meaning anything at all.

Converting Privilege Into Obligation

Neither the citizen nor the heir chose the structure they were born into, but both are answerable for what they do with it. The good citizen and the good heir each prove themselves by converting privilege into obligation and obligation into something durable. A family’s educational efforts have to acknowledge that reality.

Preparing Heirs With Family Governance and Stewardship Expectations

Preparing an heir isn’t a side project. It deserves as much intention as any other part of the plan. At NextVantage, we work with families to build the structures that reinforce this kind of thinking.

Things like governance frameworks, family councils, stewardship expectations that are written down and revisited. The families who get this right have one thing in common. They treated that preparation of their heirs as seriously as the management of their assets.

Starting the Conversation About Responsible Wealth Transfer

If this connects with something that you’re thinking about, I welcome a conversation. You can reach us at Next-Vantage.com. The conversation doesn’t have to start anywhere complicated, it just has to start.

Do You Need a Family Office? What Wealth Alone Can’t Tell You

The families we work with often arrive at the family office question the same way. Their financial situation has grown more complex than their current advisory structure can manage, and they want to know whether building a dedicated structure makes sense.

Complexity drives this decision—how many entities are involved, whether your advisors share a coherent view of your situation, and how many generations the plan needs to span. Those variables matter more than any single number.

Teresa Armel, Wealth Advisor at Next Vantage, walks through the six factors that genuinely shape this decision, including why a family office is not always the right answer.

If this is something you are working through, we hope the video gives you a useful framework.

Transcript

Do You Need a Family Office? What Wealth Alone Can’t Tell You

When Your Advisory Team Is Not Fully Coordinated

You have a CPA, an estate attorney, a financial advisor, and probably a few other advisors. Each of them knows they’re part of your situation, but none of them is responsible for how the pieces connect. And you are the one managing that gap, on top of running a company or a demanding career, on top of your family, and on top of everything else you have going on.

Do You Need a Family Office?

At some point, the question of a family office surfaces. Most people approach it by just asking whether they have enough wealth to justify one. But that question on its own misses the bigger picture.

Hi, I’m Teresa Armel, a wealth advisor at Next Vantage. We work with families who have reached a point where their financial complexity has outpaced their current advisory structure. Whether establishing a family office is the right answer to that problem depends on six key factors.

Factor 1: Family Office Complexity

The first factor is complexity. The question of having enough wealth matters in a sense that a family office is expensive, and there is a floor below which the economics simply don’t work. But complexity is what determines whether one is genuinely needed, and these two concepts don’t always move together.

For families overseeing businesses across multiple jurisdictions, real estate in different markets, and estate plans that span more than one generation, the coordination alone can grow well beyond what a traditional advisory arrangement was ever built to manage. If the advisors you have are each working their piece without visibility into the others, that is a signal that you should consider a family office. The second factor to consider is cost.

Factor 2: Family Office Cost

A properly staffed family office is expensive to operate. Depending on the structure and scope, you are typically looking at somewhere between one to three million dollars a year, and sometimes even more. Before that number becomes the basis for a decision, it needs to be measured against what you are currently spending across all your advisors, and whether a dedicated structure would deliver better outcomes for the difference.

Some families find that comparison points clearly toward building a family office, others find that what they need is simply better coordination of the advisors they already have, and that is a different answer, and often a less expensive one. Assuming the economics support it, the third factor is purpose. A family office without a defined mandate tends to expand in directions that weren’t intended and underperform in areas that were.

Factor 3: Defining the Purpose of a Family Office

Before building anything, the family needs to define what the office will be specifically responsible for. Investment management, tax and legal coordination, philanthropy, education for the next generation, those are just a few things to consider. The scope should really come from the family’s genuine needs, not from a general idea of what a family office is supposed to include.

Factor 4: Family Governance and Decision-Making

The fourth factor is governance, and it is one that families most consistently underestimate. Governance means having written clarity around who makes which decisions, how disagreements between family members or branches get resolved, and how leadership responsibilities transfer over time. A structure without that clarity tends to function well until a specific moment arrives where it doesn’t.

The families that work through those questions before a conflict forces them to are the ones who navigate transitions with far less disruption. With governance defined, the fifth factor is people. A family office requires specialized professionals across several functions, including investment management, legal and tax expertise, estate planning, and operational staff experience in running a complex private organization.

Factor 5: Building the Right Family Office Team

The ability to attract and retain that talent is one of the most practical constraints on this decision. A well-designed structure with the wrong team will underperform a simpler one with the right people every time. And the sixth factor is structure, specifically, what are you building? The three models to consider are a single-family office built and staffed exclusively for one family, a multi-family office that distributes infrastructure and costs across several families, and then a hybrid that draws from both.

Factor 6: Choosing a Family Office Structure

Each involves different trade-offs on cost, privacy, control, and operational responsibility. How the previous five factors resolve tends to make one of those options look considerably more appropriate than the others. Working through these six key factors does not always lead to the conclusion that a family office is the right answer.

When a Family Office May Not Be the Right Answer

For some families, the right structure is a more coordinated advisory relationship, one that delivers the oversight and integration a family office would provide without the cost and complexity of building a standalone organization. That distinction is a significant part of what we do at Next Vantage.

Talk With Next Vantage About Family Office Planning

If you are managing complexity that your current advisory structure was not built to handle, we would welcome the chance to discuss what the right answer looks like for your specific situation. You can reach our team at next-vantage.com.