Introduction
2025 has already brought several noteworthy changes to U.S. tax and corporate law that will affect tech founders, early‑stage employees and investors. The One Big Beautiful Bill Act (OBBBA), signed on July 4 2025, modifies the rules for Qualified Small Business Stock (QSBS), while the Internal Revenue Service (IRS) launched electronic filing for Section 83(b) elections in July 2025. This post highlights the major changes, why they matter and how you can plan accordingly.
The One Big Beautiful Bill Act and QSBS
Section 1202 of the Internal Revenue Code allows certain founders, employees and investors to exclude gains from QSBS on the sale of shares. Until recently, the rules required a five‑year holding period and limited eligibility to companies with up to $50 million in assets. The OBBBA expands access to QSBS incentives:
- Tiered gain exclusion – Instead of a single five‑year threshold, the OBBBA introduces a graduated schedule for stock issued after July 4 2025:Note that any portion of the gain that is not excluded under the 3‑ or 4‑year rules is taxed at a 28 % rate (plus the 3.8 % net investment income tax), higher than the standard long‑term capital gains rate.
- 3‑year holding period: 50 % gain exclusion. This allows an earlier exit while still sheltering half of the gain from federal tax.
- 4‑year holding period: 75 % gain exclusion.
- 5+ years: 100 % gain exclusion (unchanged from prior law).
- Higher exclusion cap – The per‑issuer cap on excluded gain is increased from $10 million to $15 million, indexed for inflation. Investors may still use the 10× basis alternative if it yields a larger exclusion.
- Larger company eligibility – To qualify as a “qualified small business,” a corporation’s gross assets at the time of stock issuance must not exceed $75 million (up from $50 million), with inflation adjustments starting in 2027. This change allows late‑stage or growth‑stage startups to issue QSBS and still provide tax benefits.
- State nonconformity still matters – While the federal changes are significant, not all states conform to Section 1202. As of July 2025, states such as Alabama, California, Mississippi, New Jersey and Pennsylvania do not follow the federal QSBS exclusion; Hawaii and Massachusetts partially conform. Founders and investors in nonconforming states may owe state income tax on gains even if federal tax is excluded. Careful state‑level planning—often through non‑grantor trusts in tax‑friendly jurisdictions—can help maximize benefits.
Why It Matters
The OBBBA provides greater flexibility for founders, employees and investors. Partial exclusions after 3 or 4 years make early exit strategies more attractive, while higher caps and broader eligibility encourage larger investments. However, the tiered system’s higher tax rate on the non‑excluded portion and the patchwork of state conformity rules mean that personalized planning is still essential.
Electronic Filing of Section 83(b) Elections
When founders or employees receive restricted stock, they can file a Section 83(b) election to pay tax on the value of the shares at grant rather than at vesting. Historically, the election required mailing a paper form to the IRS within 30 days of the grant. In July 2025, the IRS rolled out an online filing portal that modernizes this process.
Key Points
- Electronic filing available – Taxpayers can now submit Form 15620 online and receive instant confirmation. The 30‑day deadline for filing still applies.
- Audit trail – Online filings provide a time‑stamped record of submission, reducing the risk of lost paperwork and offering better documentation in case of IRS scrutiny.
- Practical benefits – Faster processing and confirmation, reduced risk of mail delays and simpler compliance tracking for companies.
- Limitations – Online submissions are capped at 999,999 securities, so very large grants may require paper filing. The system only accepts two decimal places; grants priced at fractions of a cent should still be mailed. Taxpayers must still provide a copy of the election to their employer or issuer.
Action Steps
- Educate teams – Ensure founders and employees understand the importance of filing an 83(b) election within 30 days of grant. Late elections cannot be cured.
- Register for the IRS portal early – The portal requires an ID.me login, so set up credentials before a grant occurs.
- Maintain documentation – Save the IRS confirmation and provide copies to your company for its records.
- Review large or fractional‑priced grants – If your award exceeds 999,999 securities or has pricing fractions (e.g., $0.0001 per share), consult your advisor about filing by mail.
Additional OBBBA Provisions Relevant to Startups
Beyond QSBS changes, the OBBBA introduces several other tax incentives that affect startups and investors:
- Immediate R&D expensing – The OBBBA permanently restores immediate deduction of domestic research and development costs for tax years after December 31 2024. Qualifying small businesses may also retroactively deduct amortized R&D expenses for 2022–2024.
- 100 % bonus depreciation – The law makes 100 % bonus depreciation permanent for qualified property placed in service after January 19 2025. Startups can deduct the full cost of machinery, computers and other tangible assets in the year of acquisition, improving cash flow.
- Other incentives – The OBBBA relaxes business interest deduction limitations and introduces targeted bonus depreciation for qualified production property used in manufacturing or production. These provisions encourage investment in physical infrastructure and support high‑growth companies.
Conclusion
The legal landscape for startups has shifted significantly in 2025. The OBBBA’s QSBS reforms offer more flexible paths to liquidity and larger tax benefits, but they also introduce a tiered system that requires careful planning. Meanwhile, the IRS’s new electronic filing option for Section 83(b) elections simplifies compliance while maintaining strict deadlines. Founders, employees and investors should consult advisors to tailor strategies to their specific circumstances, especially when navigating state conformity rules, managing large equity grants or planning multi‑year exits.
Staying up to date with these changes will help you structure equity thoughtfully and protect more of your hard‑earned gains. Feel free to reach out if you have questions or would like to discuss how these developments affect your company.
