Will Figma Employees Cash Out Tax-Free? The QSBS Angle Everyone’s Talking About

Adam Tahir
3 days ago
3 min read

Updated: 1 day ago

Introduction: Figma’s IPO and a Potential $10M Tax Break

Figma officially went public today, sending waves across the design and startup communities. But beneath the headlines about share price and valuation, there's a quieter question brewing in tax circles:

Can Figma’s early employees and founders exclude up to $10 million of their IPO gains—completely tax-free—under §1202 Qualified Small Business Stock (QSBS)?

For those who qualify, the answer could mean a life-changing reduction in capital gains tax. But like all great tax breaks, the fine print is everything.

What Is QSBS and Why It Matters in Tech IPOs

QSBS, or Qualified Small Business Stock, is a powerful provision under IRC §1202 that allows eligible shareholders to exclude up to 100% of capital gains (up to $10 million or 10x basis) when they sell stock in a qualified C-corporation.

It’s one of the most aggressive tax incentives available to startup founders, early employees, and angel investors—but only if certain conditions are met.

Did Figma Qualify?

Here’s what matters most for a company like Figma:

C-Corporation: QSBS only applies to stock issued by U.S.-based C-corps. Figma has been structured as a Delaware C-corp since early on.

Gross Assets Under $50M: The stock must be issued when the company has less than $50M in assets. This likely applied to Figma stock issued in its early funding rounds and employee option grants.

5-Year Holding Period: The stockholder must hold the shares for at least five years before sale. This is where many Figma employees may get tripped up.

Where It Gets Complicated: The Adobe Deal and Secondaries

Figma was set to be acquired by Adobe for $20B in 2022 a deal that collapsed due to antitrust scrutiny. For many employees and early backers, this created two issues:

Stock Turnover and Restructuring
Some stock may have been reissued or converted during internal restructuring post-deal potentially resetting the QSBS clock.
Secondary Sales
Founders and early investors who sold shares pre-IPO in secondary rounds may not qualify for QSBS treatment on those transactions. QSBS applies only if the stock was acquired at issuance, not via purchase from another holder.

Scenario Analysis: Who Might Benefit

Let’s break down three possible Figma stakeholder profiles:

Stakeholder	QSBS Eligible?	Comments
Early Engineer (Joined 2018, exercised ISO in 2019)	✅ Likely	5+ year holding, meets original issuance rule
Late-Stage VP (Joined 2022, RSUs vest at IPO)	❌ Not eligible	RSUs taxed as comp, not stock issuance
Seed Investor (2015 SAFE converted in 2016)	✅/❌ It depends	Depends on timing of conversion + holding period

State-Level Conformity (or Not)

Even if shareholders qualify federally, state treatment varies:

California: No QSBS exclusion at the state level
New York: Conforms, but city tax still applies
Texas & Florida: No state income tax, so the QSBS gain is already tax-free

Advisors must evaluate federal and state exposure together, especially in tech-heavy jurisdictions.

Final Thoughts: Planning Lessons for the Next IPO Wave

Figma’s IPO is a landmark tech liquidity event but it also underscores how vital early-stage tax planning is. If you want to take advantage of QSBS:

Form your startup as a C-corp early
Track asset thresholds before raising large rounds
Encourage employees to early-exercise options
Avoid stock restructuring that resets the QSBS clock
Keep meticulous records of original issuance and holding dates

At Bizora, our AI helps CPAs and startup advisors model QSBS eligibility, run exclusion scenarios, and optimize post-liquidity planning.