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Another great question! 🎯 and of course we say “it depends” and “it’s not quick or easy”  when you do things right, we may find opportunities during our tax planning strategy meetings to help you work through your exit strategy in the most tax advantaged way. isn’t just for Silicon Valley startups — Section 1202 Qualified Small Business Stock (QSBS) can also be a high-impact planning tool for small business owners, medical practices with C-Corp structures, and entrepreneurs seeking long-term wealth protection.

With the new OBBBA rules arriving, this is a perfect time to revisit what Sec. 1202 actually says and how we can use it in planning.

🌟 What Is Section 1202 QSBS? (In Plain English)

IRC Section 1202 allows non-corporate taxpayers to exclude a portion — or sometimes all — of their capital gain from the sale of Qualified Small Business Stock (QSBS).

To qualify, the stock must meet the statutory rules in Sec. 1202:

📘 Core QSBS Requirements (From the Statute)

• 🏢 Stock must be issued by a domestic C corporation (Sec. 1202(c)(1)).
• 🆕 Stock must be acquired at original issuance (Sec. 1202(c)(1)(B)).
• 💵 Corporation’s aggregate gross assets must not exceed the threshold (Sec. 1202(d)(1) & (2)).
• 🏭 At least 80% of assets must be used in qualified trades or businesses (Sec. 1202(e)).
• 🚫 Certain service businesses — including health, law, accounting, consulting, and other professional services — do not qualify as “qualified trades or businesses” (Sec. 1202(e)(3)).

💡 That means:
👉 Most medical practices, law firms and other professional services businesses do NOT qualify as a Sec. 1202 QSBS business.
But a non-medical MSO (Medical Service Organization) C corporation CAN qualify AND a non-legal MCO (Management Company/Organization), C corporation CAN qualify because an MSO or MCO generally is not a prohibited service business.

🎇This is where tax planning gets interesting.

⚖️ Pre-OBBBA vs. Post-OBBBA Rules — Explained

🔹 Before OBBBA (old law)

• ⏳ Required 5-year holding period to claim exclusion (Sec. 1202(a)(1) prior law).
• 🎯 Exclusion percentages based on acquisition date:
  • 50% → stock acquired before Feb. 18, 2009
  • 75% → stock acquired Feb. 18, 2009–Sept. 27, 2010
  • 100% → stock acquired after Sept. 27, 2010
• 💰 Per-issuer gain exclusion cap:
  • Greater of $10M or 10× basis (Sec. 1202(b)(1)).
• 💵 Aggregate gross assets limit:
  • $50M (Sec. 1202(d)(1)).

🔹 After OBBBA (new rules) — for stock acquired after July 4, 2025

🆕 Tiered Holding Period (Sec. 1202(a)(5))

• 🎉 3 years → 50% exclusion
• 🎉 4 years → 75% exclusion
• 🎉 5+ years → 100% exclusion
  Same familiar 100% exclusion remains — you just get more flexibility

🧠 Why Sec. 1202 Planning Matters for Small Businesses, Medical Entrepreneurs, Law Firms

• 🌱 Encourages long-term growth
• 📉 Reduces tax liability on exit
• 🧲 Attracts investors
• 🛡 Strengthens business structure
• 🚀 Builds long-term wealth

For medical practices, law firms and other professional services businesses, a bifurcated model is often the only path to QSBS eligibility, because professional services themselves cannot qualify.

Final Thoughts ✨ The main take-away to note before your eyes glass over is, tax planning can save you big 💲 even when your initial short or long-term goals for yourself or your business change.  Any time is the right time to review and discuss options with your tax and financial advisory team. Remember, better financial reporting isn’t just for “big” businesses, It’s for smart businesses.  It’s for your business.

🚀Seems like this is another call to action, no wishful thinking, let’s not say “I wish I had…”,  and as always

Feel free to search our website for some of our complementary resources or get in touch:  Contact us if you have tax concerns, tax minimization questions or want to discuss the next steps for your business success and financial goals.  Feel free to search our website for some of our complementary resources or get in touch:  Contact us if you have tax concerns, tax minimization questions or want to discuss the next steps for your business success and financial goals.  Use our search box for those posts specific to tax minimization, business planning, business best practices, casualty losses, etc. and see what “pop’s” up. . Here’s a link to other blog posts.