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Qualified small business stock (QSBS), also called Section 1202 stock, gives founders and early startup investors an opportunity to exclude part or all of their profit from capital gains taxes when they sell their stock. 

The company issuing the QSBS and buyer need to meet specific requirements for the exemptions to apply. For example, the company must be a domestic C corporation, can’t have over $50 million in assets before or immediately after issuing the stock, and can’t be part of specific types of trade or business (such as health, law, or farming). The buyer has to be an individual, trust, or pass-through entity and has to hold the stock for at least five years before selling.