Capital gains tax is the tax owed on the profit from selling an asset, like company stock, for more than its purchase price. The rate depends heavily on how long the asset was held: short-term (one year or less) gains are taxed as ordinary income, while long-term gains get a lower, preferential rate.
For a founder or early employee selling company stock, the difference between short-term and long-term treatment can be substantial, since long-term capital gains rates are generally well below ordinary income tax rates. Part of why the holding period on equity, when it was actually acquired, when options were exercised, matters as much as the sale price itself.
QSBS is the more powerful version of this idea for qualifying startup stock: instead of just a lower rate on the gain, it can exclude some or all of the gain from tax entirely, provided the holding-period and eligibility requirements are met. The two rules interact, and which one actually applies depends on facts worth confirming with a CPA well before a sale, not during it.
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