Opinion: Kick The IRS Off Your Startup’s Cap Table

The startup world has an odd habit of celebrating exits without much thought to what happens next. Champagne is popped, LinkedIn posts are written, and for a brief moment, the entire journey—the late nights, the existential dread, the improbable victories—feels neatly resolved. Then the wire transfer lands. And then the tax bill arrives. And suddenly, that victory lap starts to feel a little like running into a brick wall.

For founders who’ve built their companies with the sheer force of will, the notion of willingly handing over 25-35% of their hard-earned gains to the government should be a kind of intellectual violence. Yet, time and time again, entrepreneurs do exactly that—often because no one has told them they don’t have to.

The IRS has a Preferred Stake in Your Profits

Every founder has a nasty, but generally silent member on their cap table called the IRS - they have sole rights to probably the largest amount of value you create in your business, unless you step in.

Most founders are heads-down building their companies, which means financial planning often takes a backseat to growth metrics, hiring, and whatever crisis just came up. Many assume that their lawyers and accountants will bring up QSBS if it applies. But that assumption is almost always a costly one.

For stock to qualify as QSBS, it must be held for at least five years, issued by a domestic C-Corp with gross assets under $50 million at the time of issuance, and used in an active business (not just an investment vehicle, and subject to a few excluded sectors). Founders who restructure, take in new funding, or pivot their business model without understanding these criteria might unknowingly disqualify themselves from the benefit. That’s the kind of mistake that can cost a founder millions—and send a silent thank-you note to the IRS.

The Power of QSBS Rollovers

Many founders are aware of QSBS, but what they often don’t know is that selling stock before the five-year mark or exceeding the $10 million exemption doesn’t necessarily mean all is lost. This is where the QSBS rollover under Section 1045 comes into play.

A QSBS rollover allows founders and investors to defer capital gains by reinvesting the proceeds from their original QSBS sale into another QSBS-eligible company within 60 days of the sale. This means:

• If you sell your stock before the five-year holding period, you can continue deferring the QSBS benefit by rolling into a new qualified business.

• If you hit the $10 million exclusion cap, rolling gains into another QSBS investment can extend your tax benefits beyond that threshold.

For founders who don’t want to see their tax advantages vanish simply because of timing or scale, QSBS rollovers are a critical tool that should be part of every exit strategy. Without planning, you may unintentionally hand over millions to the government that could have been reinvested into your next venture, or a safer rollover opportunity (like the QSBSrollover.com partnership program).

What Founders Should Be Doing Instead

Founders should be as aggressive about tax strategy as they are about product-market fit. The same instincts that lead an entrepreneur to negotiate supplier contracts, find engineering talent abroad, or optimize a go-to-market motion should apply to their own financial outcomes. If you’re willing to fight for an extra percentage point of equity in a term sheet, why wouldn’t you fight to keep a third of your exit proceeds?

The plan is straightforward:

Know if You Qualify. Not all startup stock is QSBS-eligible. If your company is a C-Corp, issued stock when assets were under $50 million, and has been operating in a qualified industry, you’re in the running.

Hold for Five Years (Or Use a QSBS Rollover). The QSBS exemption only applies if stock has been held for five years. If an early exit is inevitable, a 1045 rollover allows you to reinvest and preserve your QSBS benefits.

Structure Strategically. If you’re planning an exit, coordinate with tax professionals in advance. Don’t assume that your standard-issue CPA knows the nuances of QSBS—seek advisors who specialize in it.

Educate Investors. Investors can also benefit from QSBS, and understanding it may make your company even more attractive to early backers. Savvy investors love a tax-efficient exit as much as a high-multiple one.

The Real Endgame

This is bigger than just keeping more money in founders’ pockets (though, let’s be honest, that’s a pretty good reason on its own). It’s about keeping capital in the innovation economy. Every dollar lost to unnecessary taxation is a dollar that isn’t being reinvested into the next startup, the next big idea, the next founder with a vision that could change an industry.

If we accept that startups are the engines of economic growth, then making sure founders aren’t unnecessarily handing over a third of their exit proceeds to the government isn’t just good personal finance—it’s good policy.

So, before you pop the champagne, before you write the triumphant farewell post, before you wake up to find that the IRS is your newest and most unwelcome detractor on your cap table —ask yourself this: Am I about to make the most expensive mistake of my life? If the answer is yes, it might be time to rethink your exit strategy and consider the power of a QSBS rollover.