Section 1202 and QSBS (Qualified Small Business Stock) refer to the same provision — Section 1202 of the Internal Revenue Code is the statute that provides the QSBS gain exclusion. The terms are used interchangeably. Section 1202 allows non-corporate taxpayers to exclude up to 100% of capital gains from the sale of qualifying small business stock held for more than 5 years, subject to the $10M or 10x basis limit.
Book a Free Call →No — Section 1202 only applies to C-Corp stock. S-Corp stock, LLC membership interests, and partnership interests do not qualify. This is a key reason why many startups are organized as C-Corps (or convert to C-Corps before issuing equity to investors). If you are considering converting your S-Corp or LLC to a C-Corp to issue QSBS, the 5-year holding period clock starts at the conversion date, not the original formation date.
Book a Free Call →Yes — each round of qualifying stock issuance starts a new holding period and has its own $10M exclusion limit (or 10x basis, whichever is greater). If you invested $500,000 in a seed round and $2M in a Series A, each tranche has its own exclusion limit. The 10x basis rule means the $2M Series A investment could exclude up to $20M in gains — potentially much more than the $10M flat limit.
Book a Free Call →Stock splits generally do not affect QSBS status — the new shares retain the QSBS characteristics of the original shares. In a merger or acquisition, if you receive stock in the acquiring company, the new stock may or may not qualify as QSBS depending on whether the acquisition was a tax-free reorganization and whether the acquiring company meets the QSBS requirements. Cash acquisitions trigger the gain recognition and the Section 1202 exclusion applies at that point.
Book a Free Call →It depends on your state. California does not conform to Section 1202 and taxes QSBS gains at the full state rate (up to 13.3%). New York conforms to the federal exclusion. Texas, Florida, and other states with no income tax provide automatic state-level relief. If you live in California and are planning an exit, relocating to a no-income-tax state before the sale can save millions in state taxes on top of the federal exclusion.
Book a Free Call →Small businesses with 100 or fewer employees receive a tax credit of up to $5,000 per year for 3 years for the costs of starting a new retirement plan, plus an additional credit for employer contributions.
A 10-person company starting a 401(k) receives $5,000/year for 3 years = $15,000 in direct tax credits, covering most of the setup and administration costs.
SECURE 2.0 (2023) increased the credit and added a 100% employer contribution credit for plans with 50 or fewer employees.
A UNK client owned a landscaping company with 12 employees and had never offered a retirement plan. Uncle Kam showed him the SECURE 2.0 Act's enhanced startup credit: for businesses with 50 or fewer employees, the credit covers 100% of plan startup costs (up to $5,000/year) for the first 3 years — a potential $15,000 in credits. The client set up a Safe Harbor 401(k), claimed the full $5,000 startup credit in Year 1, and also qualified for an additional $500/year credit for adding automatic enrollment. Total Year 1 credits: $5,500.
Small business with no retirement plan? The government will pay you up to $15,000 to start one. Book a call to set it up.
Be the Next Win — Book a CallThe Retirement Plan Startup Credit (Form 8881) provides a tax credit for small businesses that establish a new qualified retirement plan (401(k), SEP-IRA, SIMPLE IRA, or defined benefit plan). Under SECURE 2.0, businesses with 50 or fewer employees can claim 100% of eligible startup costs up to $5,000/year for the first 3 years — a maximum of $15,000 in total credits.
Eligible startup costs include: plan setup and administration fees, employee education and enrollment costs, and costs to set up payroll integration. The credit covers 100% of these costs for businesses with 50 or fewer employees, and 50% for businesses with 51-100 employees. Businesses with more than 100 employees do not qualify.
Yes — SECURE 2.0 added a $500/year credit for plans that include automatic enrollment features. This credit is available for the first 3 years of the plan and stacks on top of the startup cost credit. A plan with automatic enrollment can generate up to $16,500 in total credits over 3 years ($15,000 startup + $1,500 auto-enrollment).
No — the startup credit is only available for new plans. If you already have a retirement plan and want to add features (like automatic enrollment), you may qualify for the auto-enrollment credit but not the startup cost credit. The plan must be established for the first time to qualify for the startup credit.
The best plan depends on your goals: a Safe Harbor 401(k) avoids discrimination testing and allows maximum contributions for owner-employees; a SIMPLE IRA is easier to administer but has lower contribution limits; a SEP-IRA is easy to set up but requires proportional contributions for all eligible employees. Uncle Kam can model the contribution and tax savings for each option based on your payroll.
Donate appreciated securities directly to charity and receive a deduction for the full fair market value while avoiding capital gains tax on the appreciation.
Donating $50,000 in stock (basis $5,000): $50,000 deduction + $9,000 avoided capital gains = $27,500 total tax savings vs. $18,500 if you sold and donated cash.
Never sell appreciated stock and donate the proceeds — always donate the stock directly. Use a DAF if the charity does not accept stock directly.
A UNK client held $120,000 in Apple stock with a cost basis of $20,000 — a $100,000 long-term gain. He planned to sell the stock, pay the capital gains tax, and donate the after-tax proceeds to his alma mater. Uncle Kam redirected the strategy: donate the stock directly to the university's DAF. By donating the shares directly, the client deducted the full $120,000 fair market value, avoided $22,000 in federal capital gains tax (at 20% + 3.8% NIIT on the $100,000 gain), and the university received the full $120,000 instead of $98,000.
Planning a charitable gift? Never sell appreciated stock first — donate it directly and keep the capital gains tax. Book a call to structure your next gift.
Be the Next Win — Book a CallYes. You can donate long-term appreciated stock (held more than 1 year) directly to a qualified charity or Donor-Advised Fund and deduct the full fair market value on the date of the gift — up to 30% of AGI. You also avoid paying capital gains tax on the appreciation. This is almost always more tax-efficient than selling the stock and donating cash.
When you donate appreciated stock, you get two tax benefits: (1) a charitable deduction for the full fair market value, and (2) you avoid capital gains tax on the appreciation. When you donate cash, you only get the charitable deduction. For stock with large embedded gains, the difference can be tens of thousands of dollars.
You can donate publicly traded stocks, mutual funds, ETFs, bonds, real estate, private company stock, cryptocurrency, and other appreciated assets. The deduction rules vary by asset type: publicly traded securities are deductible at fair market value; private company stock and real estate require a qualified appraisal; cryptocurrency is treated like property.
Contributions of long-term appreciated capital gain property to public charities are deductible up to 30% of AGI. Contributions to private foundations are limited to 20% of AGI. Excess contributions carry forward for up to 5 years. Cash donations to public charities are deductible up to 60% of AGI.
Yes. The IRS treats cryptocurrency as property, so donating appreciated crypto directly to a qualified charity or DAF allows you to deduct the fair market value and avoid capital gains tax on the appreciation — the same as donating appreciated stock. The charity or DAF can then sell the crypto tax-free.
Sell investments at a loss to offset capital gains from other investments, reducing or eliminating capital gains tax. Excess losses offset up to $3,000 of ordinary income annually.
Harvesting $50,000 in losses offsets $50,000 in capital gains, saving $10,000 at a 20% long-term rate. Excess losses carry forward indefinitely.
Avoid the wash sale rule — do not buy the same or substantially identical security within 30 days before or after the sale. Replace with a similar (not identical) investment.
A UNK client had a concentrated stock portfolio and realized $85,000 in capital gains from selling a position in early 2023. Later that year, during a market correction, several of his other holdings were down significantly. Uncle Kam identified $55,000 in unrealized losses across three positions. The client sold those positions, harvested the $55,000 in losses, and immediately reinvested in similar (but not identical) ETFs to maintain market exposure without triggering the wash-sale rule. The $55,000 in losses offset $55,000 of his gains, reducing his net capital gain to $30,000.
Have unrealized losses in your portfolio? Tax-loss harvesting is a free tax reduction available every year. Book a call before year-end.
Be the Next Win — Book a CallTax-loss harvesting is the practice of selling investments at a loss to offset capital gains from other investments, reducing your overall tax liability. The harvested losses first offset capital gains dollar-for-dollar. If losses exceed gains, up to $3,000 of excess losses can offset ordinary income per year. Remaining losses carry forward indefinitely to future years.
The wash-sale rule disallows a loss deduction if you buy the same or "substantially identical" security within 30 days before or after the sale. To avoid triggering the rule, you can immediately reinvest in a similar but not identical security (e.g., sell a Vanguard S&P 500 ETF and buy a Fidelity S&P 500 ETF), wait 31 days before repurchasing, or use the loss to rebalance your portfolio.
No — losses in tax-deferred accounts (IRA, 401(k)) cannot be harvested because all gains and losses inside those accounts are tax-deferred. Tax-loss harvesting only applies to taxable brokerage accounts. This is one reason why it can be beneficial to hold more volatile assets in taxable accounts where losses can be harvested.
Yes — and cryptocurrency has a significant advantage: the wash-sale rule does not currently apply to crypto (it applies only to "securities" under the tax code, and crypto is classified as property). This means you can sell crypto at a loss, immediately repurchase the same coin, and still claim the loss deduction. This may change with future legislation.
Capital losses first offset capital gains of the same type (short-term losses offset short-term gains; long-term losses offset long-term gains). Excess losses can offset gains of the other type. After offsetting all capital gains, up to $3,000 of net capital losses can offset ordinary income per year. Remaining losses carry forward indefinitely.
Crypto tax loss harvesting involves selling cryptocurrency at a loss to offset capital gains and, potentially, a limited amount of ordinary income. For the 2026 tax year, you can use these realized losses to first offset any capital gains from other crypto sales or investments. If your capital losses exceed your capital gains, you can then deduct up to $3,000 of the remaining loss against your ordinary income, as per IRS Publication 550. Any losses beyond this $3,000 limit can be carried forward indefinitely to offset future capital gains and ordinary income, providing a valuable long-term tax planning tool.
When performing crypto tax loss harvesting, the maximum amount you can deduct against your ordinary income in a single tax year is $3,000. This limit applies after you have used your capital losses to offset all your capital gains. This rule is consistent with the treatment of capital losses from other investments, as outlined in IRS Publication 550. Any losses exceeding this $3,000 threshold can be carried forward to subsequent tax years, allowing you to utilize them against future capital gains and ordinary income until they are fully depleted.
Yes, you can perform crypto tax loss harvesting multiple times within the same tax year. There are no IRS restrictions preventing you from realizing losses throughout the year as market conditions change. This flexibility allows you to strategically manage your portfolio and optimize your tax position. However, it's crucial to accurately track all your transactions and ensure proper cost basis accounting for each sale to avoid errors when preparing your tax return, as detailed in IRS Notice 2014-21 regarding virtual currency.
Unused crypto tax loss harvesting deductions, specifically those exceeding the $3,000 annual limit against ordinary income, can be carried forward indefinitely to future tax years. This means you don't lose the benefit of these losses; you can apply them to offset capital gains and up to $3,000 of ordinary income in subsequent years. This carryforward provision, consistent with IRS Publication 550, is a significant advantage of tax loss harvesting, allowing you to mitigate future tax liabilities even if you don't have sufficient gains or ordinary income in the current year.
Yes, when performing crypto tax loss harvesting, you must report all your cryptocurrency sales, including those at a loss, on IRS Form 8949, Sales and Other Dispositions of Capital Assets. The totals from Form 8949 are then transferred to Schedule D, Capital Gains and Losses, where your net capital gain or loss is calculated. It is essential to accurately record the date of acquisition, date of sale, cost basis, and sales price for each transaction. Maintaining detailed records is crucial for substantiating your reported losses if questioned by the IRS, as emphasized in IRS Notice 2014-21.
Assets transferred at death receive a new cost basis equal to the fair market value at the date of death, eliminating all embedded capital gains that accrued during the decedent's lifetime.
A $2M stock portfolio with a $200,000 original basis: if held until death, heirs inherit with a $2M basis, eliminating $360,000 in capital gains taxes.
Do not sell highly appreciated assets — hold them until death for the step-up. Combine with a 1031 exchange chain for real estate to defer gains and step up at death.
A UNK client's father had purchased Apple stock in 1990 for $12,000. At his death, the shares were worth $352,000 — a $340,000 gain. Without planning, the client assumed she would owe capital gains tax when she sold the shares. Uncle Kam explained the step-up in basis: because the shares passed through the estate, the client's cost basis was stepped up to $352,000 (the date-of-death value). She sold the shares immediately for $352,000 and owed zero capital gains tax on the $340,000 in appreciation.
Have appreciated assets you plan to pass to heirs? The step-up in basis is one of the most powerful estate planning tools available. Book a call to coordinate your plan.
Be the Next Win — Book a CallWhen you inherit an asset, your cost basis is "stepped up" to the fair market value on the date of the decedent's death (or an alternate valuation date 6 months later). This means all appreciation during the decedent's lifetime is permanently erased for capital gains purposes. If you sell the asset immediately after inheriting it, you owe zero capital gains tax on the lifetime appreciation.
Most capital assets that pass through an estate receive a step-up: stocks, bonds, mutual funds, real estate, business interests, and collectibles. Assets held in IRAs and 401(k)s do not receive a step-up — they are subject to ordinary income tax when withdrawn. Assets in irrevocable trusts may or may not receive a step-up depending on how the trust is structured.
In community property states (California, Texas, Arizona, Nevada, Washington, Idaho, Louisiana, New Mexico, Wisconsin), both halves of community property receive a step-up in basis when one spouse dies — not just the deceased spouse's half. This is a significant advantage over common law states, where only the deceased spouse's share receives the step-up.
For very large embedded gains, holding appreciated assets until death can eliminate the capital gains tax entirely through the step-up in basis. However, this strategy must be weighed against estate tax exposure (if the estate exceeds the exemption), liquidity needs, and the opportunity cost of holding a concentrated position. Uncle Kam can model the tradeoffs for your specific situation.
Yes — donating appreciated assets to a qualified charity or Donor-Advised Fund eliminates the capital gains tax and generates a charitable deduction for the full fair market value. This is often more tax-efficient than holding until death (which avoids capital gains but may trigger estate tax) or selling and donating cash (which triggers capital gains before the donation).
Contribute cash or appreciated assets to a DAF, receive an immediate charitable deduction, avoid capital gains on donated assets, and distribute grants to charities at your own pace.
Donating $100,000 in appreciated stock (basis $20,000) to a DAF: $100,000 deduction + $16,000 in avoided capital gains tax = $53,000 in total tax savings at 37%.
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When business deductions exceed income, the resulting net operating loss can be carried forward indefinitely to offset future taxable income, reducing taxes in profitable years.
A startup with $200,000 in NOL carries it forward. In Year 3 with $300,000 profit, the NOL offsets $200,000, saving $74,000 in taxes.
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LLCs are tax-neutral entities — the tax election determines how income is taxed. S-Corp election saves self-employment taxes; C-Corp election enables retained earnings at 21% rate.
An LLC earning $200,000 net profit: default taxation costs $28,240 in SE tax. S-Corp election with $80,000 salary saves $12,000+/year in SE taxes.
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Founders and investors in qualified small businesses can exclude up to $10 million (or 10× their adjusted basis) in capital gains from federal income tax when selling stock held for more than 5 years.
A founder selling $10M in QSBS stock (basis $100K) excludes the entire $9.9M gain, saving $1.98M in federal capital gains taxes.
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A dollar-for-dollar tax credit for qualified research expenses including wages, supplies, and contract research. Startups can apply up to $500,000/year against payroll taxes.
A software company spending $500,000 on R&D wages qualifies for a $50,000–$100,000 federal tax credit, dollar-for-dollar against taxes owed.
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Transfer appreciated assets into a CRT, receive an immediate charitable deduction, avoid capital gains on the sale, and receive income payments for life or a term of years.
Transferring $1M in appreciated stock (basis $100,000) to a CRT eliminates $180,000 in capital gains tax, generates a $300,000+ charitable deduction, and provides lifetime income.
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Invest capital gains from any source into a Qualified Opportunity Fund within 180 days to defer the gain until December 31, 2026, and eliminate all taxes on appreciation after 10 years.
A $2M capital gain invested in a QOF: defers $400,000 in taxes until 2026. If the fund doubles to $4M in 10 years, the $2M appreciation is completely tax-free.
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Defer and potentially eliminate capital gains taxes by investing in Qualified Opportunity Zone Funds within 180 days of a capital gain event.
Investing $500,000 of capital gains into a QOF and holding 10 years eliminates all taxes on the new appreciation — potentially $300,000+ in tax-free gains.
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Invest capital gains into a Qualified Opportunity Fund within 180 days to defer the original gain until 2026 and eliminate all appreciation on the QOZ investment after a 10-year hold.
An investor with $500,000 in capital gains invests in a QOZ fund. The $500K gain is deferred to 2026. If the fund grows to $1.5M, the $1M appreciation is completely tax-free.
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Spread the recognition of capital gains from a property sale over multiple years by receiving payments in installments, keeping annual income in lower tax brackets.
Selling a property with $600,000 in gains. Spreading over 6 years keeps you in the 15% capital gains bracket instead of 20%, saving $30,000+.
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A self-directed IRA allows investment in alternative assets including real estate, private loans, and businesses — generating tax-deferred (Traditional) or tax-free (Roth) returns.
A Roth self-directed IRA that purchases a $300,000 rental property generating $24,000/year in rent: all rental income and appreciation grow completely tax-free.
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R&D credits are a dollar-for-dollar tax credit — not just a deduction — and apply to software development wages.
NOL carryforwards from startup losses can offset future profitable years indefinitely.
Qualified Small Business Stock (QSBS) under §1202 can exclude up to $10M in gains from federal tax.
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