Disclaimer: The scenario in this article is a fictional illustration meant to demonstrate how certain tax strategies might work in practice. It is not tax, legal or investment advice. Always consult qualified professionals to discuss your specific circumstances.

The Scenario

Meet Sophia, a serial entrepreneur who built a tech company from a garage prototype to a fast‑growing enterprise valued at $80 million. With markets rebounding and interest from strategic buyers brewing, she’s contemplating a partial liquidity event. At the same time, she wants to future‑proof her family’s wealth and support philanthropic causes. How can she structure her next moves to maximize after‑tax outcomes, honor her legacy and keep optionality?

This week’s edition explores two emerging levers in the tax code that could make a multi‑million‑dollar difference for entrepreneurs like Sophia: new Qualified Small Business Stock (QSBS) rules and expanded estate‑tax exemptions under the One Big Beautiful Bill Act (OBBB). We’ll also outline planning considerations should parts of the Tax Cuts and Jobs Act (TCJA) sunset after 2025.

1. QSBS 2.0 – Early Liquidity With Generous Exclusions

The OBBB has transformed the QSBS landscape. Historically, investors had to hold qualifying C‑corporation shares for at least five years to exclude up to $10 million (or 10× basis) in capital gains from federal taxes. For stock issued after July 4 2025, the rules are far more flexible: investors can exclude 50 % of gains after three years, 75 % after four years, and 100 % after five yearsbakerdonelson.com. The per‑issuer cap on eligible gains has also increased to $15 million, and the qualifying asset threshold for issuing companies has risen from $50 million to $75 millionbakerdonelson.com.

Implications for Sophia (hypothetically):

• If her company restructures as a qualifying C‑corp and issues new QSBS, she could unlock significant gain exclusions even if she sells shares before the traditional five‑year mark.
• Earlier partial exits via secondary sales or redemptions become more attractive, offering liquidity to diversify without waiting half a decade.
• The higher $15 million per‑issuer cap may allow larger tax‑free gains across multiple tranches.

Planning tips: QSBS requirements are strict (the company must operate in an eligible industry, meet asset‑threshold tests and issue shares directly to the investor). Ensure corporate documents are updated, track basis meticulously and consider gifting QSBS to family members or trusts to multiply exclusions. Because state conformity varies, consult advisors to maximize benefits across jurisdictions.

2. Estate‑Planning Opportunity – The $15 Million Exemption

While many feared the TCJA’s generous estate‑tax exemption would revert to pre‑2018 levels (~$5 million per person) in 2026, the OBBB made the heightened exemption permanent and indexed for inflationbakerdonelson.com. The basic federal estate and gift tax exemption now stands at $15 million per individual ($30 million for married couples) beginning in 2026bakerdonelson.com. By using lifetime gifts and trusts, families can shift enormous wealth outside their taxable estates.

Implications for Sophia (hypothetically):

• She and her spouse could transfer up to $30 million of appreciating assets into irrevocable trusts without incurring federal estate or gift tax.
• Moving shares before a liquidity event allows future appreciation to escape estate tax, effectively “freezing” the value at the transfer date.
• Leveraging grantor‑retained annuity trusts (GRATs) or spousal lifetime access trusts (SLATs) can provide income back to the couple while excluding growth from their estates.

Planning tips: Determine which assets are best suited for gifts (those with high growth potential). Coordinate with valuation experts to substantiate transfer values. Because some states impose their own estate or inheritance taxes with lower exemptions, integrate state‑level strategies such as migrating trusts to tax‑friendly jurisdictions.

3. What if the TCJA Sunsets?

Despite the OBBB’s permanent estate‑tax fix, other TCJA provisions—like lower individual income‑tax rates, the 20 % qualified‑business‑income (QBI) deduction and higher standard deductions—are set to expire at the end of 2025 unless Congress acts. Analysts estimate that more than $4 trillion in tax hikes could take effect if the TCJA sunsetsharness.co.

Implications for Sophia and other business owners:

• Income‑tax brackets may rise, making it more expensive to realize large gains after 2025.
• The QBI deduction (20 % pass‑through deduction) could disappear, raising effective rates on business income.
• Itemized deductions, including the SALT cap, could revert to less favorable rules.

Planning tips: Accelerate income into 2025 when rates are known; consider Roth conversions, bonus payouts or asset sales. For pass‑through entities, evaluate C‑corp conversions (especially with the new QSBS benefits) or restructure as an S‑corp for payroll tax flexibility. Monitor legislative developments in 2025 to pivot if Congress extends some TCJA provisions.

4. Bringing It Together – Sophia’s Game Plan (Hypothetical)

To illustrate how these levers work in concert, imagine Sophia executes the following:

1. Convert to a C‑corp and issue QSBS to herself and a trust for her children. She holds some shares until they qualify for 75 % exclusion after four years, then sells to diversify into passive investments.
2. Fund a Spousal Lifetime Access Trust (SLAT) with $10 million of non‑QSBS shares while using part of her $30 million combined exemption. The SLAT invests in marketable securities and private credit, keeping growth outside her estate but allowing distributions to her spouse if needed.
3. Make charitable gifts of appreciated shares to a donor‑advised fund. She claims a deduction at today’s higher marginal rates (in case rates rise post‑2025) and recommends grants to causes she cares about over time.
4. Accelerate income and harvest gains in 2025 before any potential rate hike, while deferring deductible expenses into 2026 if they’ll shelter income at higher rates.

By coordinating these strategies, Sophia positions herself to take advantage of QSBS’s new flexibility, lock in the enlarged estate exemption and hedge against uncertain future tax law. The result? She enjoys liquidity and philanthropic impact today while preserving more wealth for tomorrow.

Final Reminder

This article is for educational and illustrative purposes only, based on fictional scenarios. Tax laws are complex and subject to change; your unique circumstances matter. Before undertaking any strategy, please consult your CPA, attorney or financial advisor.