Last Updated: November 26, 2025
- Key Takeaways
- The "New QBI": With the Section 199A (QBI) deduction sunsetting on Dec 31, 2025, QSBS is now the primary tax shield for founders.
- 2025 Legislation Update: The "One Big Beautiful Bill Act" (OBBBA) raised the exclusion cap to $15M for new stock, but existing founders remain capped at $10M.
- The Stacking Strategy: "Stacking" involves gifting stock to non-grantor trusts to multiply the $10M exclusion, potentially shielding $40M+ from federal tax.
- Urgency: Trusts must be funded before a binding letter of intent (LOI) is signed to avoid the "assignment of income" doctrine.
Table of Contents
Introduction: The Post-Sunset Landscape
For the past eight years, the Qualified Business Income (QBI) deduction has been the darling of the tax code for pass-through entities. But as we approach the end of 2025, the tax landscape is shifting violently. The 2025 TCJA Sunset Survival Guide: Preparing for the 'Great Reversion' in 2026 details how individual rates are snapping back to 39.6% and the 20% QBI deduction is vanishing.
For founders eyeing an exit in 2026 or beyond, the math has changed. The C-Corporation, armed with Section 1202 Qualified Small Business Stock (QSBS) exclusions, is no longer just an alternative—it is the only remaining vehicle capable of delivering a 0% federal tax rate on substantial gains. However, for successful founders, the standard $10 million exclusion is often insufficient. Enter QSBS Stacking, the advanced strategy that transforms Section 1202 from a capped benefit into a scalable wealth shield.
The OBBBA Update: $15M vs. $10M Caps
On July 4, 2025, the "One Big Beautiful Bill Act" (OBBBA) was signed into law, introducing the most significant changes to Section 1202 in over a decade. It is crucial to understand which rules apply to your specific shares.
For Stock Acquired AFTER July 4, 2025
The new legislation is generous for new founders. The per-issuer exclusion cap has been raised to $15 million (indexed for inflation starting in 2027), and the gross asset test has been bumped to $75 million. Additionally, a tiered holding period now allows for a 50% exclusion after just 3 years.
For Stock Acquired BEFORE July 4, 2025
Most founders reading this today fall into this category. If you incorporated and acquired your shares between 2010 and early 2025, you are arguably "stuck" with the old rules: a $10 million cap and a strict 5-year holding requirement. With valuations soaring, a $10 million exclusion on a $50 million exit leaves $40 million exposed to capital gains taxes (now reverting to 20% + 3.8% NII + potentially higher state rates).
This "legacy" cohort is the primary beneficiary of stacking strategies.
Deep Dive: The Mechanics of QSBS Stacking
QSBS stacking, often called "Trust Packing," leverages the specific wording of Section 1202(b)(1). The exclusion limit applies "per taxpayer." By legally multiplying the number of taxpayers who own the stock, you multiply the exclusion.
The Strategy: A founder gifts QSBS shares to multiple irrevocable non-grantor trusts. Because each trust is a separate legal taxpayer with its own tax ID (EIN), each trust can claim its own separate $10 million exclusion.
This is particularly potent when combined with Estate Tax 'Use It or Lose It': SLATs and Anti-Clawback Strategies. By moving high-growth stock out of your estate now, you freeze the value for estate tax purposes and multiply the income tax exclusion.
Grantor vs. Non-Grantor Trusts
The distinction is critical. A Grantor Trust (like a standard revocable living trust) is disregarded for income tax purposes; the founder is still the taxpayer. A Non-Grantor Trust (like a complex NING or a properly structured SLAT) pays its own taxes. Only Non-Grantor Trusts work for QSBS stacking.
Visualizing the Tax Savings
To understand the magnitude of this strategy, consider a $50 million exit in 2026. We compare a standard Non-QSBS sale (C-Corp or S-Corp without QBI) against a Standard QSBS claim and a Stacked QSBS claim involving the founder and three trusts.
Risks: Section 643(f) and IRS Scrutiny
While potent, stacking is not without peril. The IRS is keenly aware of this strategy. Section 643(f) allows the IRS to consolidate multiple trusts into a single trust if:
- They have substantially the same grantor and primary beneficiaries.
- A principal purpose of the trusts is tax avoidance.
To mitigate this, sophisticated advisors use distinct trust terms, different beneficiaries (e.g., Trust A for Child 1, Trust B for Child 2), and often different trustees. This is where The QBI Cliff: Entity Restructuring and Defined Benefit Plans becomes relevant—if stacking is deemed too risky, restructuring the entity itself might be the necessary backup plan.
Strategic Forms & Deadlines
| Form Name | Purpose | Key Deadline |
|---|---|---|
| Form 8949 | Sales and Other Dispositions of Capital Assets (Report QSBS exclusion code ‘Q’) | April 15 (with 1040) |
| Schedule D | Capital Gains and Losses Summary | April 15 (with 1040) |
| Form 1041 | Income Tax Return for Estates and Trusts (Each trust files separately) | April 15 |
For those who miss the QSBS window or have non-qualifying assets, The Charitable Lead Annuity Trust (CLAT) as a High-Income Shield offers a viable alternative to mitigate the tax hit.
Glossary of Terms
- QSBS (Qualified Small Business Stock)
- Stock in a C-Corporation with gross assets under $50M (or $75M post-OBBBA) at issuance, held for 5+ years (or tiered post-OBBBA).
- Non-Grantor Trust
- A trust treated as a separate taxable entity from its creator, essential for claiming a separate QSBS exclusion cap.
- ING Trust
- Incomplete Non-Grantor Trust. A structure used to keep assets out of the grantor’s income tax return without completing a gift for gift tax purposes.
Frequently Asked Questions
Can I stack QSBS exclusions retroactively?
No. The stock must be gifted to the trusts before the sale occurs. Ideally, this should happen well before a Letter of Intent (LOI) is signed to avoid the IRS arguing "assignment of income."
Does the 2025 OBBBA legislation help me if I founded my company in 2018?
Generally, no. The increased $15M cap applies to stock acquired after July 4, 2025. Your 2018 stock is subject to the $10M cap, making stacking even more critical for you.
What if I don’t have children to create trusts for?
You can create trusts for other beneficiaries, or potentially use Strategic Roth Conversions: The 'Tax Rate Arbitrage' Window to manage the tax burden on the excess gains if stacking isn’t feasible.
Conclusion
As we face the 2026 TCJA sunset, the era of easy pass-through deductions is ending. For founders, QSBS Stacking represents the last great frontier of tax-free wealth generation. While the "One Big Beautiful Bill Act" has modernized the rules for the next generation of startups, today’s exiting founders must rely on the precise execution of trust strategies to maximize their rewards.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. The "One Big Beautiful Bill Act" details are based on the specific legislative landscape of late 2025. Consult a qualified CPA for your specific situation.
