Top Startup Law Updates for 2025: QSBS, 83(b) and FinCEN

Early‑stage founders and investors need to stay on top of evolving tax and corporate regulations. Recent changes in federal and state law have reshaped key planning strategies around qualified small business stock (QSBS), Section 83(b) elections, and beneficial ownership reporting. Here are three of the most consequential updates to know in 2025.

1. New QSBS Rules under the “Big Beautiful Bill”

Qualified small business stock (QSBS) offers powerful tax benefits: if you hold QSBS for a specified period, you can exclude a large portion—or even all—of the gain on sale. The 2025 federal legislation dubbed the Big Beautiful Bill revised Section 1202 and made QSBS more attractive. Key changes include:

• Shorter holding periods. The law now allows partial exclusions (50 % and 75 %) at 3‑ and 4‑year milestones, with the full 100 % exclusion available at the 5‑year mark for qualified small business stock acquired after July 4, 2025. Previously, full exclusion required a 5‑year holding period with no partial relief.
• Higher gain cap. The lifetime cap on tax‑free gain has been increased from $10 million to $15 million, meaning successful exits can shield a larger portion of gains.
• Larger issuer threshold. The threshold of aggregate gross assets for an issuer to qualify has been raised from $50 million to $75 million, bringing more growing startups within reach.

However, the basics still apply: only stock in a U.S. C‑corporation can qualify. Shares issued while the company is an S‑corporation are ineligible, even if you revoke the S‑election later. Redemption transactions and certain conversions can also taint QSBS. If you started as an LLC, your QSBS holding period generally begins when you convert to a C‑corporation and receive stock.

2. Electronic Filing for 83(b) Elections

Founders and early employees receiving restricted stock often make an 83(b) election to recognize ordinary income at grant and convert future appreciation to capital gain. Historically this involved mailing the IRS a paper election within 30 days. In 2024, the IRS introduced Form 15620 and an online filing option. Now you can log in to your IRS online account and file electronically. The key rules remain:

• File within 30 days of the stock transfer—late filings are invalid.
• Restricted stock only. RSUs and options are not eligible for 83(b) elections.
• Keep copies for your records and provide a copy to your company.

The online system makes compliance easier, but the tight deadline still leaves little room for error. If you’re a founder or employee receiving stock subject to vesting, talk to your tax advisor immediately.

3. FinCEN Beneficial Ownership Reporting – U.S. Companies Now Exempt

The regulatory landscape around beneficial ownership reporting shifted dramatically in March 2025. On March 2, 2025 the U.S. Department of the Treasury announced that it would suspend enforcement of the Corporate Transparency Act’s beneficial ownership reporting rules for U.S. citizens and domestic reporting companies and would issue rules narrowing the requirement to foreign reporting companies. Treasury Secretary Scott Bessent called the action a “victory for common sense” and framed it as part of President Trump’s deregulatory agenda.

• U.S. companies and U.S. persons are exempt. Domestic entities (previously termed “domestic reporting companies”) and U.S. citizen or resident beneficial owners no longer have to file initial or updated beneficial ownership reports. The exemption applies retroactively and prospectively; FinCEN has said it will not enforce penalties against domestic companies or their beneficial owners.
• Foreign entities still must report. Foreign corporations and LLCs registered to do business in a U.S. state must report their beneficial owners unless an exemption applies. The rule extends deadlines for these entities: those registered before the rule’s publication have 30 days from publication to file, and those registering after publication have 30 days after registration.
• U.S. persons aren’t reported as owners of foreign entities. Foreign reporting companies will not have to disclose the personal information of U.S. beneficial owners.

FinCEN implemented this policy on March 21, 2025, issuing an interim final rule that redefines a “reporting company” to mean only entities formed under the law of a foreign country that register to do business in the United States. Under the rule:

While this development provides significant relief for domestic startups, FinCEN is accepting comments and plans to finalize the rule later in 2025. Companies with foreign affiliates should continue tracking CTA developments and consult counsel on whether and when reporting obligations apply.

Final Thoughts

Regulatory landscapes shift quickly. Staying proactive about QSBS planning, 83(b) elections and beneficial ownership reporting can save significant taxes and avoid penalties. Seattle’s startup scene also faces unique state‑level considerations, such as Washington’s capital gains excise tax. For tailored advice on your cap table, equity grants or compliance obligations, schedule a consultation.