Could You Sell Your Business and Pay No Federal Capital Gains Tax?

By Nidia C. Skokanic, E.A. | Last Updated: October 6, 2026 | Reading Time: 9 minutes

In some cases, yes. Qualified Small Business Stock (QSBS) under Section 1202 of the Internal Revenue Code allows certain owners and investors to exclude 50%, 75%, or 100% of the gain when they sell stock in a qualifying C corporation. For stock acquired after July 4, 2025, the exclusion can be as much as $15 million per taxpayer, per company, and it can start after just three years.

If you own a small business, the way your company is structured today could have a significant impact on the taxes you pay when you eventually sell it. It is a tax provision that many business owners have never heard of, and in the right situation it can mean hundreds of thousands, or even millions, of dollars of gain excluded from federal income tax.

It is also a provision with strict rules. Not every business qualifies, LLCs and S corporations do not qualify on their own, and the planning has to happen years before a sale. Here is what Florida business owners should know.

QSBS at a Glance (Stock Acquired After July 4, 2025)

What Is Qualified Small Business Stock?

QSBS is stock issued by a qualifying U.S. C corporation that meets the requirements of Section 1202. When the requirements are met and the stock is held long enough, part or all of the gain on sale is excluded from federal income tax.

The main requirements are:

• The issuer is a domestic C corporation at the time the stock is issued and during substantially all of the time you hold it.
• The company is small enough. Its aggregate gross assets cannot exceed $75 million at any time before the stock is issued or immediately after.
• You received the stock directly from the corporation, not by purchasing it from another shareholder, in exchange for money, property (other than stock), or services.
• The company runs an active business. At least 80% of its assets must be used in one or more qualified trades or businesses during substantially all of your holding period.
• The business is not an excluded type (more on this below).

There are additional technical rules, including limits on the corporation redeeming its own stock around the time of issuance. Each one needs to be reviewed against the facts of the specific company.

What Changed for QSBS in 2025?

The One Big Beautiful Bill Act, signed July 4, 2025, expanded Section 1202 for stock acquired after that date. Three changes matter most to business owners:

• A shorter path to the exclusion. Owners no longer have to wait five years to receive any benefit. The exclusion is 50% after 3 years, 75% after 4 years, and 100% after 5 years.
• A higher cap. The per-taxpayer, per-company limit increased from $10 million to $15 million (or 10 times your basis in the stock, if greater).
• A bigger company can qualify. The gross asset threshold increased from $50 million to $75 million.

Both dollar figures will be adjusted for inflation starting with tax years after 2026. Stock issued on or before July 4, 2025 continues to follow the prior rules, so a company may have two classes of stock under two sets of rules depending on when each share was issued.

What Could This Mean in Real Dollars?

Consider a simplified example.

Suppose you form a qualifying C corporation in Florida in 2026 and receive your stock directly from the company when it is still small. Years later, the company becomes successful and you sell your stock for a $5 million gain.

If your stock qualifies under Section 1202 and you have held it for at least five years, the entire $5 million gain could be excluded from federal income tax. If you sold after three years instead, 50% of the gain would be excluded and the remaining $2.5 million would be taxable.

One detail owners should understand: the portion of QSBS gain that is not excluded is taxed at a maximum federal rate of 28%, not the usual 20% long-term capital gains rate, and it may also be subject to the 3.8% net investment income tax. Even with that, a 50% or 75% exclusion is a significant benefit.

That is why QSBS planning should happen before a business becomes highly valuable, not when the owner is already negotiating a sale. The holding period only starts when qualifying stock is issued.

Does Every Small Business Qualify?

No, and this is extremely important. Simply operating a small business as a C corporation does not automatically make your stock QSBS.

Section 1202 specifically excludes businesses that provide services in the fields of:

• Health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services
• Any business where the principal asset is the reputation or skill of one or more employees
• Banking, insurance, financing, leasing, investing, and similar businesses
• Farming, including raising or harvesting trees
• Oil, gas, and mineral extraction businesses eligible for percentage depletion
• Operating a hotel, motel, restaurant, or similar business

Businesses that typically can qualify include manufacturing, distribution, technology and software, retail (other than restaurants), construction, and many product-based or e-commerce companies. The company must also meet the active-business, gross asset, and original-issuance requirements described above.

What If My Business Is an LLC or S Corporation?

An ownership interest in an LLC taxed as a partnership, or stock in an S corporation, does not itself qualify as QSBS. Section 1202 requires the stock to be issued by a C corporation.

However, depending on the circumstances and the owner’s long-term plans, there may be opportunities to restructure a business so that future appreciation can potentially benefit from the QSBS rules. A few points to understand before going down that path:

• An S corporation cannot simply revoke its S election. The existing stock was issued by an S corporation, so it will never qualify. In practice, a new C corporation is formed and the business or its assets are contributed to it in a properly structured transaction.
• Only future appreciation qualifies. Any gain built up before the conversion is not excludable. The clock on the holding period starts when the new C corporation issues its stock.
• The company must pass the $75 million test at conversion, and the IRS can challenge a restructuring done solely to avoid tax, so the business reasons and the mechanics need to be documented carefully.

This is where planning becomes important. Choosing the right tax structure, whether a disregarded entity, an S corporation, or a C corporation, should never be based on one tax provision alone. C corporations have their own tax considerations and potential disadvantages, including tax at the corporate level and again when profits are distributed. The potential QSBS benefit should be evaluated as part of the owner’s overall tax strategy and eventual exit plan.

Why QSBS Matters Even More for Florida Business Owners

Florida has no personal income tax. For a Florida resident selling QSBS as an individual, the federal exclusion is the entire capital gains picture. Owners in states such as California or New Jersey may still owe state income tax on gain that is excluded federally; Florida residents generally do not.

The trade-off to weigh is on the entity side. Florida imposes a 5.5% corporate income tax on C corporations, while S corporations and LLCs taxed as partnerships generally do not pay it. That ongoing cost is one of the factors that has to be compared against a potential exclusion years in the future.

For owners in Broward and Palm Beach County who are building a company they expect to sell one day, this analysis is worth doing early, and revisiting as the business grows.

The Question Business Owners Should Be Asking

Most business owners naturally focus on reducing this year’s taxes.

But if you’re building a company that you hope will eventually be worth several million dollars, another question may be just as important:

“How will I be taxed when I eventually sell my business?”

The answer may determine how the business should be structured today.

Frequently Asked Questions About QSBS

Can I sell my business without paying federal capital gains tax?

Possibly. If your company is a qualifying C corporation, you received the stock directly from the corporation, the business is not an excluded type, and you hold the stock at least five years, Section 1202 can exclude 100% of the gain, up to $15 million per company or 10 times your basis.

How long do I have to hold QSBS?

For stock acquired after July 4, 2025, the exclusion is 50% after three years, 75% after four years, and 100% after five years. Stock acquired on or before that date still requires a full five-year holding period before any exclusion applies.

Does an LLC or S corporation qualify for QSBS?

No. QSBS must be issued by a C corporation. An LLC or S corporation may be able to restructure so that a new C corporation issues qualifying stock, but only appreciation after that point can qualify, and the holding period starts over.

Which businesses are excluded from QSBS?

Service businesses in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage are excluded, along with banking, insurance, farming, mineral extraction, hotels, and restaurants. Businesses built mainly on the reputation or skill of employees are also excluded.

Is QSBS gain taxed in Florida?

Florida has no personal income tax, so a Florida resident who sells QSBS individually generally owes no state tax on the gain. The federal exclusion is the whole picture. Florida does impose a 5.5% corporate income tax on C corporations while the business operates.

What happens to the part of the gain that is not excluded?

If only 50% or 75% is excluded, the remaining gain is taxed at a maximum federal rate of 28% and may be subject to the 3.8% net investment income tax. Gain above the $15 million or 10x-basis cap is taxed under normal capital gains rules.

How NES Tax & Accounting Can Help

At NES Tax & Accounting, we work with small and medium-sized business owners across South Florida to navigate tax compliance, entity structure, tax planning, and long-term tax strategy. That includes reviewing whether a business could qualify for QSBS, comparing the cost of operating as a C corporation against the potential exclusion, and coordinating any restructuring with the owner’s overall exit plan.

The decisions you make today can create meaningful tax-saving opportunities for years to come. With the right planning and structure, business owners can position themselves to take advantage of valuable tax incentives while supporting their long-term financial goals.

Contact NES Tax & Accounting to schedule a tax consultation and determine whether this strategy and tax incentive may apply to your business. Before forming, restructuring, or selling a business, consider whether Qualified Small Business Stock should be part of the conversation.

Plantation Office: 150 S Pine Island Rd, Suite 300, Plantation, FL 33324 | (954) 399-3966

Wellington Office: 8401 Lake Worth Road, Wellington, FL 33467 | (561) 210-1080

Website: nestaxpro.com

Email: nidia@nestaxpro.com

About the Author

Nidia C. Skokanic, E.A. is an IRS Enrolled Agent and the Managing Director of NES Tax & Accounting LLC, with offices in Plantation and Wellington, Florida. She specializes in tax compliance and accounting for small and medium-sized businesses, LLCs, S corporations, and C corporations, as well as individuals and families. Nidia holds a Bachelor’s Degree in Accounting from the University of Colorado, began her career at Arthur Andersen, and is a member of the National Association of Enrolled Agents and the Florida Society of Enrolled Agents. She is licensed to represent taxpayers before the IRS and the State of Florida.

Disclaimer: This article provides general tax information and is not intended as individualized tax or legal advice. Qualification under IRC Section 1202 depends on the specific facts and circumstances of the corporation and shareholder. Rules described reflect the law as amended by Public Law 119-21 and are current as of October 2026.

Sources: 26 U.S.C. § 1202, as amended by Public Law 119-21 (One Big Beautiful Bill Act, July 4, 2025); IRS Publication 550, Investment Income and Expenses; Florida Department of Revenue, Corporate Income Tax.