HomeUncategorizedQSBS Stacking

QSBS Stacking

Article Contents

Imagine building your very own bank, fueled by millions in tax-free gains and enabled by a powerful, yet not well known, financial tool called Qualified Small Business Stock (QSBS). This isn’t a pipe dream; it’s the potential reality unlocked by QSBS stacking, a strategy with the power to enable 100% tax-free capital gains.

So, what is QSBS?

In essence, QSBS is a tax incentive designed to boost investment in small businesses. If you hold QSBS for five years and meet certain criteria, you can exclude up to $10 million of capital gains from federal taxes. Think of it as a supercharged Roth IRA for early-stage companies.

Why does QSBS stacking exist?

The government wants to encourage investment in promising startups, and QSBS is their carrot. By offering substantial tax breaks, they incentivize individuals to take a chance on young businesses with high growth potential.

Now, here’s where the stacking comes in.

Stacking leverages the unique rules surrounding QSBS and gifting to create a cascading effect of tax-free gains. Here’s a simplified breakdown:

Establish a QSBS Trust: You gift money to an irrevocable trust that invests in a qualified small business.

QSBS Multiplication: Each beneficiary of the trust inherits their own $10 million QSBS exclusion, effectively multiplying the tax-free potential.

Borrow from the Trust: You can borrow money from the trust to invest in other assets, like real estate or further QSBS opportunities.

Repay with Tax-Free Gains: Use the income generated from your investments to repay the loan, essentially building wealth with tax-free dollars.

The key takeaways?

  • QSBS stacking can unlock tens of millions of dollars in tax-free eligibility.You can create an  trust, acting as your own bank.
  • This strategy involves complex legal and tax implications, requiring expert guidance.

 

Before diving headfirst, remember:

  • QSBS has strict eligibility requirements for both the company and the investment.Irrevocable trusts relinquish ownership; assets become your beneficiaries’.
  • Tax laws are subject to change; consult qualified professionals for personalized advice.

 

QSBS stacking is a powerful tool, but it’s not a magic bullet. Proceed with caution, seek professional guidance, and ensure you understand the risks and rewards before embarking on this potentially transformative financial journey.

Remember, responsible and informed financial planning paves the path to a secure and prosperous future. Good luck!

Don't have a Living Trust yet? Get started today.

It only takes a few minutes to create and can be updated easily any time with our Digital Workflow.

What is a Trust?

A Living Trust is a financial tool that lets you plan, organize, and protect your life. It’s a personal entity that allows you to add assets and plan out your inheritance. Eliminating legal battles, cost, and time spent by your loved ones. 

Think of it like a personal LLC that you put everything you own in. Except it doesn’t protect you from liability like an LLC does, it protects you from probate and conservatorship. 

Probate is the complicated court process (12-18 months) where a judge decides what happens to your assets after you die, become incapacitated, or are “deemed” incapable. Creating a living trust allows your assets to completely circumvent probate and immediately transfer to your loved ones. 

In addition to being able to name heirs (your beneficiaries), a Trust also allows you to assign someone to manage it (your successor trustee). Instead of going through probate, your Successor Trustee takes control of the Trust, handles your affairs, and distributes your assets according to your instructions. The person you select as Successor Trustee should be your most trusted person. Like a best friend or closest family member.

At Dynasty, we believe everyone should have a Living Trust. If you have children, assets, or plan to acquire assets in the future, you should create a Trust. That way when you buy your next home, open a bank or brokerage account, get startup shares, etc. – you can immediately title them in your trust.