Sharon Olson is the Founder & President of Olson Wealth Group, Inspired Life Family Office®, a multi-family office & wealth management firm.
When Congress passed the One Big Beautiful Bill Act (OBBBA) in July 2025, most headlines focused on its sweeping fiscal changes. Yet tucked inside the legislation was one of the most significant shifts for entrepreneurs and investors in decades: a major update to Section 1202 of the Internal Revenue Code, the section governing qualified small business stock (QSBS).
The revisions are striking. Investors now enjoy earlier access to tax exclusions, higher thresholds for qualifying businesses and an increased lifetime cap on exempted gains. Taken together, these adjustments make QSBS a more powerful wealth-building tool than ever before.
Early in my career, I understood these provisions in the abstract. But I was reminded recently, in a very tangible way, of how timing and structure can make or break the opportunity.
I worked closely with a family that started their business years ago as an LLC. “It was simple, flexible and it fit where we were at the time,” the owner told me. As the company grew and its success accelerated, we guided them through the process of converting to a C corporation. That decision opened the door to QSBS eligibility and set the stage for the next chapter.
By the time the founder was ready to begin thinking about succession and liquidity, he was married with two adult children. Together, we looked carefully at how to maximize the Section 1202 benefits before OBBBA’s changes. We advised him to transfer shares under subsection (h) of Section 1202—covering certain tax-free and other transfers—to his spouse and both children. Using marketability and minority discounts, all four family members—the two parents and the two children—were each able to take advantage of the then-maximum $10 million exclusion from gross income. In total, that meant $40 million of gain could be sheltered from tax.
That work was completed just before July 2025, when OBBBA subsequently raised the maximum exclusion to $15 million per person. The family’s outcome illustrates both the power of Section 1202 and the importance of strategic foresight. It also underscores why entity structure and timing are not mere technicalities but pivotal choices that can secure generational wealth.
Why C Corporations Matter
The law is clear: Only stock issued by a domestic C corporation qualifies as QSBS. LLCs, partnerships and S corporations do not. This has always been deliberate; in part, lawmakers wanted to encourage businesses with the ability to scale and attract outside investment.
For many founders, that realization comes after the business has already started growing. I often hear, “But we began as an LLC—can we still catch up later?” The answer is yes, but only going forward. Once converted, newly issued C corporation stock may qualify for QSBS. The earlier LLC years, however, cannot be retroactively included.
This is where timing becomes everything. Converting earlier gives founders and investors the longest possible runway. Waiting too long risks leaving a significant portion of growth outside the QSBS window. I have seen more than one family-owned business regret delaying this decision.
The S Corporation Dilemma
S corporations present a similar story. They offer appealing tax treatment in the startup years, but S corporation shares are not eligible for QSBS. That does not mean the door is closed—revoking the S election and becoming a C corporation allows future stock to qualify. But again, the clock starts only from the date of conversion.
I sometimes describe this to clients as the “short-term versus long-term” trade-off. Staying an S corporation can ease the tax burden in the early years, but converting sooner can create an exponentially larger benefit when a liquidity event comes into play.
How OBBBA Changed The Stakes
Before OBBBA, the rules encouraged patience: Investors needed to hold QSBS for five years to access the full exclusion. Many founders reasoned, “If everyone is committed for five years anyway, why rush?”
But OBBBA reshaped that logic. The law now offers partial exclusions on a stepped basis—50% after three years, 75% after four and the full 100% after five. In practice, this makes the date of conversion much more consequential. The earlier a company becomes a C corporation, the earlier shareholders can start unlocking tax relief.
The family I mentioned earlier experienced this firsthand. They were relieved we finalized their transfers just before OBBBA took effect. If they had waited, the mechanics of their planning would have looked quite different, and while the new law is generous, their particular outcome was maximized under the prior rules. It was a reminder to them—and to me—that timing cannot be separated from tax strategy.
What Founders Should Consider
Entity choice is not a one-size-fits-all decision. Starting as an LLC or S corporation often makes sense in the earliest stages when flexibility and simplicity matter most. But, as a business matures, founders should step back and evaluate whether staying the course aligns with their long-term goals.
Conversions can trigger taxable events if there are appreciated assets. Stock issued before conversion may also need to be carefully restructured. For this reason, I advise clients to explore conversion before raising major capital or issuing substantial equity. It is far easier to plan proactively than to unwind complications later.
The Bottom Line
Despite OBBBA’s changes, the fundamentals have not shifted. QSBS applies only to C corporations, excluded industries remain excluded, and stock must always be acquired at original issuance. The five-year mark still governs the full exclusion, even though earlier milestones now matter.
What has changed is the level of urgency. In the post-OBBBA environment, conversion is not a technicality—it is a defining decision. For some families, that decision has already meant the difference between a large tax bill and tens of millions preserved for the next generation.
When advising founders, I often come back to the same point: Timing and structure are not abstract tax issues. They are the pivot points that can determine whether the rewards of building a business remain in the hands of the family who built it—or are lost to missed opportunities.
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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