Expertise Beyond the Numbers

Section 1202 Qualified Small Business Stock Checklist

As an investor, it is important to not overlook important tax incentives. Section 1202 of the Internal Revenue Code allows non-corporate taxpayers to exclude all or a portion of a gain on the sale of qualified small business stock (QSBS).  To determine whether the stock you or your company holds qualifies as QSBS, you can use the checklist linked here which guides you step-by-step through the requirements you need to meet.

This checklist can be used whether you sold stock during the previous taxable year or are thinking of selling stock during the current year. The IRS enforces strict requirements to exclude gain under Section 1202; this checklist can also be a helpful tool for those who recently acquired stock to determine the eligibility of the stock as Section 1202 QSBS and, if eligible as Section 1202 QSBS, to determine the required holding period you will need to hold the stock before sale.

Now that you have completed this checklist, please provide it to your tax advisor, along with any other documents you have related to the purchase of your stock (i.e. Share certificate, copy of canceled check, etc.).

Please note this set of requirements is for federal tax purposes. You may be required to satisfy a different set of requirements to qualify for gain exclusion in your state. If you do not qualify under Section 1202 to exclude gain from the sale of QSBS, you may be able to defer gain from the sale by re-investing in a QSBS, under Section 1045.

For more information regarding Section 1202, see our article here. As you review this information if you have any questions please Contact Us regarding this tax planning opportunity.

Robin Boyd and Ashley Caudle co-authored this piece.  They are both members of the SC&H Group Investment Funds Tax Team.