Stacking QSBS: How to Multiply the $10 Million Tax Exemption on a Business Sale

Imagine selling your business and paying zero in federal capital gains taxes on the first $10 million of profit. Now, imagine being able to multiply that exemption. That’s the power of Qualified Small Business Stock (QSBS) stacking, a little-known tax strategy that savvy business owners, estate planners, and M&A advisors are using to significantly reduce or eliminate taxes when selling a business.

In this article, we’ll explain what QSBS stacking is, how it works, and how to implement it strategically.

What Is QSBS?

Qualified Small Business Stock (QSBS), under Section 1202 of the Internal Revenue Code, allows eligible shareholders to exclude up to $10 million or 10 times their basis in capital gains from federal taxes when they sell shares in a qualifying C corporation that they’ve held for more than 5 years.

To qualify:

• The stock must be acquired directly from a U.S. C corporation.

• The company must have <$50 million in gross assets at the time the stock was issued.

• At least 80% of the corporation’s assets must be used in the active conduct of a qualified trade or business.

What Is QSBS Stacking?

QSBS stacking is a tax planning strategy that increases the total amount of capital gains eligible for exclusion by leveraging multiple taxpayers’ $10 million exemptions.

Here’s how it works:

Instead of one person claiming the $10 million exemption, the seller gifts QSBS to multiple beneficiaries, such as a spouse, children, or irrevocable non-grantor trusts, before the sale. Each recipient (or trust) then qualifies for their own $10 million exemption.

Example: Let’s say a founder owns $30 million worth of QSBS. If they gift $10 million worth of shares each to two irrevocable non-grantor trusts, one for their spouse and one for their children, each trust gets its own $10 million exclusion, as does the original owner. That’s a total of $30 million of tax-free gain.

Who Can Use QSBS Stacking?

• Business owners preparing for a sale and who have held QSBS for more than 5 years.

• Estate planners and CPAs working with clients on generational wealth transfers.

• Founders of high-growth companies who anticipate large exits and want to plan ahead.

Key Requirements & Considerations

• Timing is critical – transfers must occur before a binding sale agreement is in place.

• Trusts must be non-grantor – grantor trusts are disregarded for income tax purposes and do not qualify for separate QSBS exemptions.

• Hold period must reset if shares are gifted – unless the recipient is a spouse, in which case the holding period tacks.

• Gifts must be bona fide – cannot be a “sham” or made under duress of a pending sale.

What About Gift Taxes?

When QSBS is transferred to someone other than a spouse, such as children or an irrevocable trust, it is considered a taxable gift for federal gift tax purposes. This could trigger a gift tax liability or reduce the lifetime gift and estate tax exemption of the donor.

Key Points to Consider:

• As of 2025, the lifetime federal gift and estate tax exemption is scheduled to drop to approximately $6–7 million per person, down from over $13 million in 2024, unless Congress intervenes.

• Gifts in excess of the annual exclusion (currently $18,000 per recipient in 2024) must be reported on a Form 709 Gift Tax Return.

• Gifting QSBS can reduce your taxable estate, which can be advantageous — but it still requires strategic planning to avoid unintended consequences.

• Spousal gifts are generally unlimited if both spouses are U.S. citizens and do not reduce your lifetime exemption.

Pro Tip: To qualify for QSBS stacking, trusts must be non-grantor trusts for income tax purposes, meaning the grantor must give up control and beneficial enjoyment of the trust assets. Retaining too much control or certain powers (such as the power to substitute assets or revoke the trust) can cause the trust to be treated as a grantor trust, disqualifying it from claiming a separate QSBS exemption.

If you want to balance some access or control (such as through a Spousal Lifetime Access Trust or similar structure), work closely with an estate planning attorney to avoid grantor trust status under IRC §§ 671–679.

Pros of QSBS Stacking

• Multiply tax savings well beyond the $10M cap.

• Leverage estate planning and wealth transfer strategies.

• Reduce taxable estate for high-net-worth individuals.

• Increase deal proceeds retained by the seller’s family.

Cons & Risks

• Complex trust structures may require legal and tax expertise.

• Loss of control over transferred shares in some trust scenarios.

• Potential IRS scrutiny if planning is done too close to sale.

• State tax exposure (some states do not conform to Section 1202).

Final Thoughts

QSBS stacking is a powerful tax-saving strategy, but it’s not something to attempt on your own. To implement it properly, business owners need to engage a coordinated team of tax advisors, estate planning attorneys, and M&A experts.

If you’re a founder or business owner with high-growth potential and are planning to sell in the next few years, now is the time to explore whether QSBS and QSBS stacking could dramatically reduce your tax bill.

Need Help Structuring a Tax-Efficient Exit?

At Golden Shield Business Brokers, we specialize in working with business owners and their advisory teams to unlock maximum value at exit. Reach out today to see how we can help structure a sale that lets you keep more of what you’ve built.