Trump’s New Tax Law May Boost Startup Founders and Early Employee Wealth

Mark Eisenberg
Photo: Finoracle.net

Impact of Trump’s New Tax Law on Startup Tax Planning

President Trump’s One Big Beautiful Bill Act (OBBBA) introduces key adjustments to capital gains taxation that may influence how entrepreneurs and investors structure their startups. While the corporate tax rate remains steady at 21%, the modifications to the Qualified Small Business Stock (QSBS) exemption offer substantial benefits for founders and early employees of C corporations.

Expanded QSBS Exemption: A New Incentive for C Corps

The OBBBA increases the QSBS capital gains exclusion cap from $10 million to $15 million for stock acquired after July 4, 2025. This change allows shareholders to shield a greater portion of gains from taxation—potentially saving nearly $1.2 million in taxes per shareholder, according to wealth strategist Ben Rizzuto of Janus Henderson. Additionally, the minimum holding period to qualify for the exclusion has become more flexible. Investors can now receive a 50% exclusion after three years, 75% after four years, and the full exclusion after five years. This tiered approach enables earlier liquidity events without forfeiting all tax benefits.
“The changes to QSBS are some of the biggest changes we saw in the OBBBA,” said Rizzuto. “For founders and early employees, it offers the ability to shield a larger portion of gains, do more robust estate planning, and have more flexibility in choosing when to realize a gain based on the new, tiered exclusion system.”

Growing Asset Limits and Market Context

The legislation also raises the gross assets threshold for qualifying C corporations to $75 million, up from $50 million. This adjustment makes C corp status more attractive for startups expecting rapid growth or substantial outside investment. This change arrives amid a surge in IPO activity and burgeoning sectors like artificial intelligence, which are driving new business models and significant capital inflows. Alison Flores from H&R Block notes that the increased exclusion cap facilitates larger investments and capital raises, fostering growth opportunities and value creation.
“The increased exclusion cap allows investors to increase their investments,” said Flores. “Qualifying businesses will be able to raise larger amounts of capital, creating more value for stakeholders.”

Choosing Between C Corps and Pass-Through Entities

Despite the enhanced QSBS benefits, pass-through entities such as S corporations and LLCs remain favorable for many small businesses, especially those not planning to retain earnings or pursue rapid exits. These entities avoid the double taxation associated with C corporations, where profits are taxed at the corporate level and again upon distribution. Bill Smith of CBIZ advises founders to carefully assess their business model and timeline. “Owners looking to extract most profits annually may face significant tax friction as C corps,” he said, underscoring the importance of aligning entity choice with long-term goals.
  • C corps are subject to corporate formalities including board meetings and annual reports.
  • Pass-through entities benefit from the permanent 20% Qualified Business Income deduction under OBBBA.
  • QSBS benefits require minimum holding periods and asset limitations that affect eligibility.

Exit Strategies and Tax Implications

The new tax provisions prompt business owners to reevaluate their entity structures in light of exit strategies. Founders targeting venture capital funding or initial public offerings may find C corp status advantageous for maximizing QSBS benefits and tax-efficient liquidity events. Employee Stock Ownership Plans (ESOPs) also pair well with C corp structures, offering additional tax deferral benefits when QSBS exclusions do not apply.
“OBBBA provides increased certainty in tax matters, allowing entrepreneurs to plan scaling and exit strategies more concretely,” said Alison Flores. “Seasoned entrepreneurs should consult tax, accounting, and legal experts to identify risks and opportunities when launching ventures in 2025 and beyond.”

FinOracleAI — Market View

The recent amendments to the QSBS exemption under the One Big Beautiful Bill Act represent a pivotal shift in startup capital formation and tax planning. By increasing the exclusion cap and relaxing holding period requirements, the legislation incentivizes C corp formation among startups poised for rapid growth and liquidity events.
  • Opportunities: Enhanced tax shields for founders and early employees, greater capital access for startups, and improved alignment between investors and entrepreneurs.
  • Risks: Potential complexity and administrative burdens of C corp compliance, double taxation concerns, and eligibility limitations based on asset thresholds.
  • Pass-through entities remain optimal for businesses prioritizing steady income extraction or long-term ownership without immediate exit plans.
  • Founders and investors should proactively assess entity choice in consultation with tax and legal advisors to optimize benefits under the new law.
Impact: The updated QSBS provisions are likely to encourage a strategic shift toward C corporation structures among startups targeting significant capital gains events, thereby influencing investment flows and startup growth trajectories in the coming years.
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Mark Eisenberg is a financial analyst and writer with over 15 years of experience in the finance industry. A graduate of the Wharton School of the University of Pennsylvania, Mark specializes in investment strategies, market analysis, and personal finance. His work has been featured in prominent publications like The Wall Street Journal, Bloomberg, and Forbes. Mark’s articles are known for their in-depth research, clear presentation, and actionable insights, making them highly valuable to readers seeking reliable financial advice. He stays updated on the latest trends and developments in the financial sector, regularly attending industry conferences and seminars. With a reputation for expertise, authoritativeness, and trustworthiness, Mark Eisenberg continues to contribute high-quality content that helps individuals and businesses make informed financial decisions.​⬤