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Trump tax law boosts QSBS tax break

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1 year ago

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The recent expansion of the Qualified Small Business Stock program in the One Big Beautiful Bill Act makes a powerful tax-saving strategy even more enticing for businesses and investors.

The QBSS provision is part of Section 1202 of the Tax Code, which was originally enacted in 1993 and allowed 50% of the gain from selling QSBS to be excluded from income. That percentage later increased to 75% and then 100%.

“Even before the reconciliation bill, Section 1202 Qualified Small Business Stock was one of the most powerful and unique incentives in all of the tax law because you’re talking about an exclusion from income, not a deferral, but an exclusion,” said Tony Nitti, a principal at EY US Tax. “The ability to exit an investment in a business and not pay any federal income tax while receiving cash, that’s just not something you can get elsewhere throughout the Code. So it was already very popular, but the reconciliation bill really represents a refresh of some of these dollar limitations, but also a significant expansion of the incentive itself.” 

The new tax law raises the asset cap for qualifying businesses, increases the capital gains exclusion, introduces a tiered tax benefit for early exits, and allows significantly higher tax-free gains under the 10x exclusion rule. That presents potential implications for startup founders, investors and wealth planners, such as bigger opportunities for tax savings, shifts in investment strategies, and new considerations for long-term financial planning.

Nitti has been hearing interest from clients at EY in the possible tax savings. “Clients just really want to understand what these changes mean and how quickly they can benefit from them,” he said. “It opens up a much larger universe of corporations that people can invest into and receive QSBS because of the changes to the definition of a small business, so there’s absolutely a lot of excitement right now about the expanded 1202 provision.”

The new tax law increased the individual selling shareholders’ maximum limitation from $10 million to $15 million for stock issued after July 4, Nitti pointed out. “So $15 million of exclusion at a 23.8% federal tax rate, that’s a $3.5 million federal tax savings,” he added. “That’s got people very excited. The other thing that gets people excited is, previously you had to hold QSBS for five years to get the exclusion, and sometimes you just couldn’t make it to five years. An offer came along, it was just too good to pass up. But the new law is going to allow you to claim a 50% exclusion if you hold stock issued after July 4, 2025 for three years, 75% for stock held after four years, and then you’ll get the full 100% after five years. Now investors don’t feel like they have to have a five-year time horizon prior to exit in order for the investment to make sense. Even if they can get to three years and get a 50% exclusion, that’s going to be valuable to them.”

Businesses need to be structured as C corporations in order to qualify, and that’s prompting discussions within partnerships about converting into a C corp.

“You have to be a C corporation to benefit from QSBS,” said Nitti. “For example, a business that’s currently operating as a partnership that says, ‘Hey, this incentive is too good to pass up. Perhaps we should convert to a C corporation so that a couple of years down the road, our shareholders can benefit from this exclusion when they exit.’ One of the changes made in the reconciliation bill really does open up an opportunity for more partnerships to convert to corporations. There’s this definition of what it means to be a small business.” 

For stock issued prior to the July 4, 2025 date, before the reconciliation bill, to be a small business, a company had to have less than $50 million of assets, but that threshold has now increased under the new tax law. 

“Normally that test is measured by tax basis of assets,” said Nitti. “But for something like a partnership converting to a corporation, it’s actually measured by the fair market value of assets. Prior to July 4, if a partnership wanted to convert to a C corporation to eventually benefit from QSBS, the value of its assets had to be less than $50 million, but the reconciliation bill increased that threshold where the definition sits for a qualified small business from $50 million to $75 million. So now you’ve got partnerships out there that maybe had between $50 and $75 million of value of assets that previously couldn’t convert to a C corporation, but now can. And so that’s going to be exciting for certain partnerships that want to convert.”

Nevertheless, there are some challenges that remain even after passage of the new tax law, such as determining whether the stock qualifies. “The biggest challenge that we face in practice is that this exclusion is claimed at the selling shareholder level, so some individuals who own stock, when they sell that stock, they’re going to be the ones on their tax return to exclude the gain,” said Nitti. “But most of the requirements that have to be satisfied in order for that stock that was sold to be QSBS, most of those requirements apply at the corporate level, and so a shareholder needs some transparency into the corporation’s activities to ever be able to make the determination that their stock is, in fact, QSBS. That’s always been a challenge with this QSBS designation. And that’s not going away here in the new law. A shareholder who’s ready to exit an investment might do some research on the internet and see, hey, there’s a possibility here my stock is QSBS. But if they don’t have buy-in from the corporation to get an analysis done, or at least open up the books and records for their entire holding period, that shareholder can be stuck a little bit where they can’t make the determination whether their stock is QSBS.”

He would like to see more guidance from the Treasury and the IRS about QSBS and its expansion. “The other challenge that we’re all very hopeful will change sometime soon is that even though 1202 has been in the code since 1993 there is a noticeable lack of guidance about Section 1202,” said Nitti. “We don’t have any particularly meaningful regulations. We have very limited case law. We have maybe 12 or 13 private letter rulings, so sometimes there’s just a lot of uncertainty when trying to make this QSBS determination because basic definitional guidance hasn’t been provided yet. Some of the more complicated aspects of Section 1202, the IRS has not spoken on just yet, so that’s only going to become magnified now that there’s more dollars at stake in terms of exclusions. Hopefully the Service gets us some guidance here in the near future so that we can apply these laws with more confidence.”

He hopes to see that guidance despite staff reductions this year at the IRS and the Treasury.

“There have been some rumblings around the industry — never necessarily confirmed — that there was a guidance package in the works as of about a year and a half ago,” said Nitti. “That makes us all very optimistic. How those plans may have changed with some of the changes that have taken place at the Service, we don’t know. At this point, whether there’s a guidance package or not could best be described as a rumor, and an unverified one at that. But it’s very comforting to know that there’s even a rumor that a guidance package is being put together because I think people are very hopeful and wishing that we do get some of the guidance necessary to make some of these determinations that had have to be made to find out if the stock is QSBS.”

Taxpayers will be able to use such guidance in case they’re challenged by the IRS at some point.

“We learned from a court case in 2024 that the IRS is not going to just take your word for it that the stock is QSBS,” said Nitti. “They want you to be able to prove that you’ve satisfied all the statutory requirements, and so the best thing selling investors can do is approach the corporation, express their belief that their stock may be QSBS, and hopefully get that necessary buy-in from the corporation to have transparency into the corporation’s activities, so that they can hire an accounting firm or a law firm, somebody to go in there and determine whether or not that stock is QSBS by doing all the quantitative and qualitative tests. Otherwise, tax advisors get put in a very tricky position where you might be asked to exclude gain, which is not something we’re in the habit of doing all that often on a federal income tax return, without the necessary assurances that the requirements have been met to exclude that gain. The more people start to understand — whether it’s the shareholders or the corporations themselves — how intricate the requirements for being QSBS are, the more people will start to push for formal representations that the stock does meet the definition of QSBS, and that will just put everyone in a better position to succeed should they ever face an IRS challenge.”

Despite the possible complications, businesses and their investors will want to take a closer look at the QSBS provision. “There’s not many provisions of the Code that allow you to sell anything for cash and walk away without any federal tax liability, so the expansion of a provision like that is certainly worthy of attention,” said Nitti.

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SEC’s Semiannual Reporting Proposal Faces Investor Pushback: What CFOs Need to Know

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21 hours ago

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August 25, 2026

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U.S. Securities and Exchange Commission (SEC)

A proposal from the U.S. Securities and Exchange Commission to potentially shift some public companies away from quarterly financial reporting toward a semiannual model is drawing significant pushback from investors, even as it continues moving through the regulatory process. The debate has direct implications for corporate finance teams, auditors, and the broader transparency of U.S. capital markets.

What the SEC Proposed

According to a summary published by accounting advisory firm Cohen & Co., the SEC issued a proposed rule on May 19, 2026, aimed at simplifying financial reporting requirements for many U.S. public companies. The proposal would potentially reduce the frequency of certain mandatory disclosures from quarterly to semiannual, a structural change that has not been made to core U.S. reporting requirements in decades.

The proposal follows an extended debate within U.S. policy circles, with proponents arguing that reduced reporting frequency could lower compliance costs and free up management time for longer-term strategic planning rather than quarter-to-quarter results management.

Why Investors Are Pushing Back

Comment letters submitted in response to the proposal have been extensive, and according to Cohen & Co.’s review of the public record, investors “appear to be largely opposed” to the shift, viewing frequent interim reporting as a core benefit of U.S. capital markets relative to other jurisdictions.

Accounting and law firms have taken a more measured position, generally urging any changes to remain aligned with the Financial Accounting Standards Board (FASB), whose existing disclosure requirements and guidance are built around a quarterly reporting cadence. A shift to semiannual reporting without corresponding changes to FASB guidance could create friction between SEC filing requirements and GAAP-based disclosure expectations.

Lessons From the U.K. Experience

The debate is not without precedent. The United Kingdom moved away from mandatory quarterly reporting for listed companies in 2014, returning to a semiannual disclosure requirement. According to Cohen & Co.’s analysis, that experience offers a cautionary data point: there was no measurable increase in capital expenditure or R&D investment following the change, while analyst coverage of affected companies declined as reliable interim information became less available — a particular risk for smaller and newly public companies that rely on analyst coverage to maintain investor visibility.

Practical Implications for Finance Teams

Beyond the debate over disclosure philosophy, the proposal carries practical complications. Many companies have debt covenants and credit agreements structured around quarterly financial delivery; a shift to semiannual reporting could require renegotiating those terms. Reduced reporting frequency would also extend the “window of market silence” between disclosures, a factor that governance and investor-relations teams would need to manage carefully to avoid information asymmetry.

Separately, and unrelated to the reporting-frequency debate, the SEC and FASB have continued finalizing more routine updates this year. New Accounting Standards Updates are taking effect for December 31, 2026, fiscal year-ends covering income tax disclosures, credit loss measurement, induced debt conversions, and stock compensation, according to Eide Bailly’s review of 2026 ASU activity. Additional guidance on paid-in-kind dividends and environmental credits is also on the near-term horizon.

What to Watch Next

The semiannual reporting proposal remains in the comment and review phase, and no final rule has been adopted as of this writing. Finance leaders should monitor the SEC’s regulatory agenda for further movement, while treating the current quarterly reporting requirement as the operative standard until any final rule is issued and an effective date is set.

Given the extent of investor opposition documented in the comment file, a full shift to mandatory semiannual reporting appears more likely to result in either a scaled-back compromise or continued study rather than swift adoption — though the SEC’s ultimate direction remains uncertain.

 

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AI-Driven Automation and Continuous Accounting Frameworks

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2 weeks ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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2 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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