Phase 1 · Core Sovereign Layer

QSBS Exit Proceeds Calculator

A startup exit taxed at plain capital-gains rates can overstate your bill by millions. Apply the QSBS exclusion, expose the state trap, and see what stacking across trusts could save.

Educational estimate, not tax or legal advice. QSBS eligibility, the 10×/$10M cap, state conformance and trust stacking are complex and fact-specific, and stacking must be structured in advance by qualified counsel. Use this to size the stakes, then engage a tax attorney and CPA before relying on any number.

How much of a startup exit is tax-free under QSBS?

Section 1202 excludes the greater of $10 million or 10× your cost basis per taxpayer, provided the stock was held more than five years. Gain above that cap is taxed at 23.8% federally. The trap is state law: several states, notably California and New Jersey, do not conform and tax the whole gain regardless.

Worked example (defaults on this page): $15M of proceeds on a $100,000 basis is a $14.9M gain. The cap is $10M, leaving $4.9M taxable and $1,166,200 of federal tax.
In a conforming state at 9%, state tax is $441,000. In a non-conforming state it is $1,341,000 — the same exit costs $900,000 more purely by address.
The cap is per taxpayer, so non-grantor trusts can stack it. Two taxpayers at $10M each would exclude the full $14.9M gain here and drop federal tax to zero.
The five-year holding period is a cliff, not a slope — selling at four years and eleven months forfeits the entire exclusion. Stacking and eligibility are fact-specific; confirm with a qualified tax advisor before relying on any of it.

Under the hood

The math, fully exposed

Federal rate assumed 23.8% (20% long-term capital gains + 3.8% NIIT):

Gain = exit proceeds − cost basis

QSBS eligible if held > 5 years (Section 1202)

Exclusion cap / taxpayer = greater of $10M or 10 × basis

Excluded gain = min(gain, taxpayers × cap) (stacking)

Federal tax = (gain − excluded) × 23.8%

State tax = (conforming ? taxable gain : full gain) × state rate

The 5-year cliff is binary: sell at 4 years and 11 months and the entire exclusion vanishes. Timing the close past the five-year mark can be worth millions.
Stacking multiplies the cap: each non-grantor trust is its own taxpayer with its own $10M, so large gains above a single $10M cap can be sheltered far beyond it — if structured in advance.
State conformance is the silent trap: a federally tax-free gain can still owe full state tax in non-conforming states. Residency and timing planning matters as much as the federal break.

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Answers

Frequently asked questions

What is QSBS (Section 1202)?

Qualified Small Business Stock is stock in a qualifying C-corporation that, if held more than five years, lets you exclude a large share of the capital gain from federal tax under IRC Section 1202. It's one of the most powerful tax breaks in the US code for founders, early employees and angels — and one of the most commonly missed when people estimate an exit using plain capital-gains rates.

How much gain can I exclude?

Per taxpayer, the exclusion is capped at the greater of $10 million or 10× your adjusted cost basis in the stock, provided you held it more than five years. For a founder with a tiny basis, that's effectively a $10M federal exclusion. Gains above the cap are taxed at normal long-term capital-gains rates (plus the 3.8% net investment income tax).

What is QSBS "stacking"?

Because the $10M cap is per taxpayer, gifting QSBS shares to separate non-grantor trusts — each a distinct taxpayer — can multiply the exclusion. Three properly structured trusts plus you could shield up to four × $10M. It's powerful and entirely legal, but it must be set up correctly and well before the exit, with experienced counsel — get it wrong and the IRS collapses it.

Does my state honor the QSBS exclusion?

Not all of them. Several states — California and New Jersey notably — do not conform to Section 1202, so you owe full state tax on the gain even when it's federally excluded. Others conform fully or partially. This is the "non-conformance trap": a gain that's tax-free federally can still carry a seven-figure state bill.

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