The numbers here are large enough to change your whole return. If you invest in a qualifying C corporation, hold the stock more than five years, and later exit, you may exclude the greater of $10 million or 10x your basis in capital gains from federal tax. On a winning angel investment that's the difference between keeping nearly all of a multi-million-dollar gain and handing over 20%-plus to the IRS. It's frequently the single most valuable tax provision available to early-stage investors.
The catch is the eligibility rules, and they're strict. The company must be a domestic C corporation (not an LLC or S corp) with under $50M in gross assets at the time you acquire the stock, in a qualifying line of business, and you generally must hold for the full five years. SAFEs and convertible notes are not stock yet, so the five-year clock typically starts when they convert — a detail that catches a lot of investors off guard. Because the stakes are high and the rules unforgiving, QSBS is worth confirming with a tax advisor, and worth tracking acquisition dates carefully across every position so you don't accidentally sell at four years and eleven months. This is general information, not tax advice.