Important to note that QSBS doesn’t necessarily make sense for some “indiehacker” type businesses.
You have to be a C-corp to benefit, which means either double taxation (paying both corporate tax and personal capital gains tax on all distributions) or paying yourself all in salary with payroll/income tax on all of it.
If you don’t intended to take on investors (or don’t intend to sell), an LLC or pass through type of arrangement may make more sense in the long run from a tax perspective. Under this arrangement you pay no corporate tax, and can elect to be treated as an S Corp for tax purposes. This way you can receive some of your comp as a dividend which would be at lower capital gains tax rates.
Of course, if at any point you plan on chasing investment, Delaware C Corp from the beginning (and QSBS qualification) is generally the best advice. This is complicated stuff, so consult a professional.
The C corp pays taxes IF there is income. After your salary payment there won't be any income.
Important detail is to be sure to claim losses personally if you are investing personally. So if you fail, then at least you've got some capital losses to milk off over the years.
Of course with a c-corp you've got a PITA factor... but the PITA factor seems unavoidable when trying to manage IRS complexity.
Very few desirable countries (other than say Singapore, etc) have lower taxes than the US, so FEIE might be irrelevant if your local country has high income or capital gains taxes.
If you’re doing the digital nomad thing to avoid paying taxes anywhere (except to the US, which you can’t avoid) that might make QSBS more desirable, but under the specific scenario that:
- you live in a low tax country like singapore (or you intend to stay a traveling digital nomad for years to dodge any non-US taxes)
AND
- your business doesn’t pay you a salary significantly higher than the FEIE cap of roughly 100k/yr
If you make $500k/yr living in Singapore, the FEIE is irrelevant (since as a victim of American global tax you’ll pay US income tax wherever you are) and it’d be better to convert as much of your salary into dividends/distributions as possible to pay lower cap gains rates.
You have to be a C-corp to benefit, which means either double taxation (paying both corporate tax and personal capital gains tax on all distributions) or paying yourself all in salary with payroll/income tax on all of it.
If you don’t intended to take on investors (or don’t intend to sell), an LLC or pass through type of arrangement may make more sense in the long run from a tax perspective. Under this arrangement you pay no corporate tax, and can elect to be treated as an S Corp for tax purposes. This way you can receive some of your comp as a dividend which would be at lower capital gains tax rates.
Of course, if at any point you plan on chasing investment, Delaware C Corp from the beginning (and QSBS qualification) is generally the best advice. This is complicated stuff, so consult a professional.