This post is adapted from a recent episode of the Scholar Financial Advising podcast. Listen here for the full discussion.
A listener asked:
“We own stock in a private tech company that might IPO next year. What should we be thinking about now for taxes?”
This is a good situation to be in—and one that comes with a lot of planning opportunities. If your company might go public, here’s what to consider ahead of time.
First: Understand What You Own
The type of stock you hold matters. Do you have direct ownership, ISOs, NSOs, or something else? That will impact both your flexibility and your tax exposure.
If you’re a minority shareholder without much control over how or when an IPO happens, you’ll have fewer levers to pull—but you still have options to get ahead of some key tax decisions.
Early Exercise Can Unlock Lower Tax Rates
If you hold options (especially ISOs), consider whether it makes sense to exercise them before the IPO. Exercising early and holding the shares for more than a year could qualify you for long-term capital gains treatment, which is taxed at a much lower rate than ordinary income.
Just be aware of the risk: if the company never goes public or the shares lose value, you could be stuck with an illiquid asset and a tax bill.
Check for QSBS Eligibility
If the company’s assets are under $50 million and you’ve held your shares for five years or more, you may qualify for the Qualified Small Business Stock (QSBS) exclusion.
This can exempt up to $10 million of capital gains—or even more, in some cases. It’s a powerful planning tool, but it’s easy to miss the eligibility window, so now is the time to investigate.
Consider a 10b5-1 Plan After IPO
If the company goes public and you end up with a large stock position, insider trading restrictions may apply. A 10b5-1 plan can help you sell shares over time in a compliant and orderly way—and it also helps smooth your income across multiple years for better tax control.
Keep in mind that IPO stock often drops in value after going public. It’s common to see a post-IPO dip, especially after the initial primary market runup. So spacing out your sales can help you manage risk, too.
Run the Charitable Giving Math Ahead of Time
If your shares appreciate significantly, consider using a donor-advised fund (DAF) or charitable remainder trust (CRT) to donate a portion of your shares.
The best time to decide how much you might want to give is before the IPO—when you can think clearly and plan ahead. Otherwise, you risk making a rushed decision with a multi-million dollar windfall and no clear giving strategy.
You’ll need to strike the right balance: how much of this money will you need in your own financial plan, and how much can be set aside to support causes you care about?
Bottom Line
If your company might IPO in the next year or two, there’s real value in proactive planning. Whether you’re navigating stock options, QSBS eligibility, or big giving decisions, the earlier you think through the scenarios, the better your outcome will be.
For more insights on tax planning ahead of an IPO, listen to the full podcast episode here.