Section 1202 just got a huge upgrade — and with it comes one of the most powerful (and underutilized) tax planning strategies for founders and investors: QSBS stacking.

Thanks to the new $15 million per-person QSBS cap, high-growth company owners can now multiply their tax-free exit potential across trusts and family members — legally, cleanly, and with the IRS’s own code to back it up.

Here’s how it works.

Quick Recap: What’s New in QSBS

Under the 2025 tax reform, Qualified Small Business Stock (QSBS) now includes:

$15 million lifetime gain exclusion per taxpayer, up from $10M
Still only applies to new stock acquired after the law’s enactment
Indexed for inflation starting in 2027
100% tax-free if held 5+ years, or 75% after 4 years, 50% after 3

That’s $15M in capital gains you’ll never pay tax on — per shareholder, per company.

Enter: Trust Stacking (a.k.a. QSBS “Packing the Cap”)

QSBS gain exclusion is per taxpayer — and that includes non-grantor trusts. That means if you set up irrevocable trusts for your spouse, kids, or heirs, each one gets its own $15M QSBS exclusion.

You can stack the caps across trusts
The clock starts ticking when the trust acquires the stock
Distributions to beneficiaries after a 5-year hold can still be tax-free

Key Legal Considerations

Use intentionally defective grantor trusts (IDGTs) for maximum control
Trust must purchase or receive original-issue QSBS
Avoid “step transaction” risk — time the transfers and observe formalities
Monitor aggregation rules to avoid IRS blowback (IRC §267 & §318)
Coordinate with estate and gift planning (this often overlaps)

Bonus Strategy: Multi-Corp QSBS “Packing”

QSBS caps apply per taxpayer, per issuing corporation. That means if you're a serial founder or hold multiple C-corps:

Each entity = new $15M (or $10M pre-2025) exclusion
Combine with trust stacking for max leverage
Use corporate spinouts where appropriate, but beware IRS anti-abuse rules

Watch Out For:

QSBS only applies to original-issue stock in a U.S. C-corp
Company must have < $75M in assets at time of stock issuance (new rule)
Passive income limits, 80% active business requirement still apply
S-corps, LLCs, and partnerships don’t qualify — only C-corps

Bottom Line:

Section 1202 isn’t just for Silicon Valley unicorns. With smart planning:

You can lock in $30M–$60M+ of tax-free upside
You can shift wealth across generations without triggering gift tax
You can combine this with R&D expensing, 83(b) elections, and deferral strategies for a truly optimized cap table

Need Help Structuring QSBS Stacking?

We help founders, investors, and family offices:

Design and fund QSBS-qualified trusts
Navigate gifting and tax compliance
Stack exclusions without tripping IRS aggregation rules
Coordinate with exit strategy and estate planning

Let’s map your path to a tax-free exit — and keep more of your upside where it belongs.