When it comes to tax planning by business owners on Main Street, many aspects of President Trump‘s One Big Beautiful Bill Act were at best incremental, unlike the fundamental shifts introduced under the 2017 Tax Cuts and Jobs Act.
“The corporate tax rate is still 21%,” said Ben Rizzuto, wealth strategist at Janus Henderson. “That did not change.”
But notable changes did get layered into the new tax law for the business community, and one in particular may lead entrepreneurs launching new ventures, and their investors, to take a closer look at organizing their startups as C corporations.
The bill made C corp status more attractive for startups aiming for capital gains tax exclusion under the revised Qualified Small Business Stock (QSBS) exemption, which expanded the $10 million cap to $15 million for stock acquired after July 4, 2025. Investors must hold the stock for more than five years to receive the full exclusion but can qualify for an exclusion of 50% after three years and 75% after four. That creates an opportunity for an earlier sale of stock (the previous minimum holding period was five years) without forfeiting all tax benefits.
“The changes to QSBS are some of the biggest changes we saw in the OBBBA,” Rizzuto said. “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.”
The hike from $10 million to $15 million could save shareholders nearly $1.2 million in taxes, he estimates.
It also comes amid a new IPO boom, and within a market where new technology, led by artificial intelligence, is leading to the creation of new business models at a rapid pace, which are receiving a flood of funding, and creating significant wealth for new founders. It also comes as more rapidly growing startups seek to raise money in private markets to finance stock issued to early employees.
“The increased exclusion cap allows investors to increase their investments,” said Alison Flores, manager with the Tax Institute for H&R Block. “At the same time, qualifying businesses will be able to raise larger amounts of capital. Generally, this provides an opportunity for these businesses to pursue growth opportunities and potentially create more value for stakeholders,” she said.
A ‘game-changer’ for startup capital formation
The new rules also increase the limit on gross assets of a C corp, with companies with up to $75 million in gross assets now qualifying for QSBS status (the previous limit was $50 million). The provisions make forming a C corp especially appealing to those expecting to scale quickly or attract outside investors.
Such changes may ultimately create greater access to capital for new, fast-growing startups, especially for businesses anticipating an exit within a few years. The rules generally exclude service businesses, and primarily benefit businesses in technology, manufacturing, retail, and wholesale sectors, said Barbara Weltman, president of small business resource site Big Ideas for Small Business.
“The QSBS expansion is a game-changer for startup capital formation,” Rizzuto said. “It reduces friction for early-stage investment, encourages longer-term alignment between founders and investors, and makes equity more liquid and tax efficient.”
That means angel investors and VCs may start to structure deals to maximize such benefits while taking a more proactive role in encouraging portfolio companies to remain eligible for QSBS, he added.
While many startups, especially in the AI space, have quickly grown to valuations well north of $75 million, the aggregate gross assets limit of $75 million at the time of the stock issuance (and no more than $50 million for stock issued on or before July 4, 2025), is defined by the amount of cash plus the “aggregate adjusted basis” of other property held by the corporation.
“There is a difference between valuation and aggregate assets,” Rizzuto said. “A start up could be run out of a garage, have a couple computers, and a great idea, which could receive a high valuation. Just because the valuation is high doesn’t mean that there is an equal amount of assets,” he explained.
S Corp, pass-through income still makes sense for Main Street
Despite the new incentives for C corp status, Bill Smith, national director of tax technical services at CBIZ’s national tax office, says that most small businesses that are not planning to keep profits in the company for reinvestment or that do not have specific structuring needs should still consider forming as a pass-through entity, such as an S corporation or a Limited Liability Company (LLC).
In fact, when the 2017 tax law made the pass-through income taxation eligible to more businesses, many converted to the S corp structure. That’s because C corp owners are subject to double taxation, since the companies pay the 21% corporate income tax on profits, and then owners must also pay taxes on the dividends they receive. Therefore, it’s essential for founders to carefully consider their timeline and business model before selecting their business entity.
“The minimum holding period for the stock (to take advantage of QSBS exclusions) is three years, with five years or more garnering the biggest tax break,” said Stephen Staugaitis, director, small business advisory at Kreischer Miller. “Owners looking to extract most of the profits from the business on an annual basis will feel a heavy tax friction along the way as a C corp,” he added.
C corps must also conduct regular board and shareholder meetings, submit mandatory annual reports, and maintain required corporate records.
“Some people just don’t have the patience for some of the government’s requirements of the C corp, so maybe they need to be an LLC,” Flores said.
Exit strategy and business tax
Flores said that with the new tax law, there is at least one message that should get through to all business owners: “This is a good opportunity to evaluate your business entity structure, take inventory of your assets and your liabilities, and do a little planning to see if it might be worth changing,” she said.
When choosing an entity, founders should choose the entity that aligns with their long-term goals, whether that’s to stay private, raise venture capital, or pursue an initial public offering.
The C corp structure, according to Rizzuto, is “something that serial entrepreneurs should really sit down and think about.”
“If you’re just starting a business, and you think it’s going to be wildly successful, or you think you’re going to have any sort of gain, then the C corp may be the way to go, in order to exclude that gain,” he said.
C corp status may also make sense for companies considering an Employee Stock Ownership Plan (ESOP) as an exit strategy, offering additional tax-deferral opportunities if the QSBS does not apply, Staugaitis said.
“OBBBA provides increased certainty in the tax area, and this allows entrepreneurs to more concretely map out future options for scaling and exiting their companies,” Flores said. “Seasoned entrepreneurs, in particular, may benefit by bringing in tax, accounting, and legal team members to identify risks and opportunities as they launch new ventures in 2025 and beyond.”
Founders who don’t anticipate a rapid, VC-funded exit may benefit more from the tax advantages of organizing their business as a pass-through entity.
OBBBA also made permanent the 20% Qualified Business income deduction (QBI), which was set to expire at the end of this year. That makes LLC or S corp status attractive for many, especially for bootstrapped or service-based startups, or those with no immediate exit plans.
“If you want this to be your business for life and pass it on to your daughters, you are more likely to be interested in a pass-through entity,” Smith said. “On the other hand, if you want to grow the business and cash out, QSBS may be the better answer,” he added.
