Your company just announced it's going public. Or maybe an IPO is on the horizon within the next 6–12 months.
This moment changes everything. But what most people don't realize is that valuable planning happens before the IPO, not after.
Once your company is public, certain opportunities close. Certain tax strategies that may provide significant benefits become unavailable once the company is public. Equity decisions that gave you flexibility become locked in.
This is your window. And it's narrower than you think.
In our liquidity event framework, we talked about the four phases of planning. This post focuses on Phase 1: Assessment—the critical actions you need to take before your company goes public.
Step 1: Understand Your Equity (What Do You Actually Own?)
Before you can make smart decisions, you need to know exactly what you're working with.
Most people have a general sense of their equity, but when we ask them to break it down, they can't give us a clear answer.
Here's what you need to document:
Incentive Stock Options (ISOs)
- How many do you have?
- What's your strike price?
- When were they granted?
- When do they vest?
- Have you exercised any already?
Non-Qualified Stock Options (NSOs)
- Same questions as above
- NSOs are taxed differently than ISOs—understanding which you have matters
Restricted Stock Units (RSUs)
- How many?
- What's the vesting schedule?
- Are they single-trigger or double-trigger vesting?
Founder or Early Common Stock
- How many shares?
- When did you acquire them?
- Did you file an IRC 83(b) election? (Do you have proof?)
Why Single-Trigger vs. Double-Trigger Matters
Many RSUs have double-trigger vesting: they require both a time-based vesting schedule AND a liquidity event (like an IPO) before they actually vest.
This means RSUs that are "vested" on paper won't actually become yours until after the IPO. And when they do vest, they're immediately taxable as ordinary income.
Some early employees or executives have single-trigger RSUs, which vest based only on time. If you have these, they may vest (and become taxable) before the IPO.
Understanding which type you have matters for tax planning.
Step 2: Model the Tax Implications
This is where most people get surprised—and where early planning creates the most value.
Different types of equity are taxed in dramatically different ways. And the timing of when you exercise, sell, or hold may materially impact your tax outcomes. ISOs: The AMT Problem
ISOs offer favorable tax treatment if you play by the rules. But exercising them triggers Alternative Minimum Tax (AMT)—even though you haven't sold anything.
The AMT calculation is based on the spread between your strike price and the current fair market value (409A valuation). The larger the spread, the larger your AMT exposure.
Here's the strategy most people miss: Exercising ISOs before a company's valuation increases may reduce potential AMT exposure, depending on your situation. But you need cash to exercise, and you're taking a risk that the stock will be worth it.
This is why modeling matters. You need to understand:
- How much AMT would you owe if you exercised now?
- How much would you owe if you waited until after the IPO?
- Do you have the cash to pay the AMT bill?
- Can you spread the exercise across multiple years to manage the tax hit?
One powerful approach: creating "AMT space" by strategically selling other appreciated assets (like NSOs or taxable stock) to increase your regular tax liability, which allows you to exercise more ISOs before hitting AMT.
Disclaimer: These strategies are provided for educational purposes only and may not be appropriate for every individual. Consult a tax professional before making decisions.
NSOs: Ordinary Income at Exercise
NSOs are simpler from a tax perspective—but not cheaper.
When you exercise NSOs, the spread between your strike price and the fair market value is taxed as ordinary income. Period.
If you're exercising while the company is still private, that value is based on the 409A valuation. After the IPO, it's based on the market price—which could be significantly higher.
Strategy consideration: If the current 409A valuation is still low (close to your strike price), exercising NSOs before the IPO may reduce the ordinary income tax impact, depending on your situation.
RSUs: Taxed at Vesting
RSUs are taxed as ordinary income when they vest, based on the fair market value at that time.
There's not much you can do to change the tax treatment of RSUs. But you do need to plan for the tax bill—because it can be substantial.
Critical planning point: Make sure you understand when your RSUs will actually vest. If you have double-trigger RSUs, they won't vest until the IPO happens. When they do, you'll owe ordinary income tax on their full value—and you may need to sell shares immediately to cover the tax bill.
Step 3: Evaluate QSBS Qualification (Understanding Potential Tax Benefits)
Qualified Small Business Stock (QSBS) under Section 1202 of the Internal Revenue Code may provide significant tax advantages for qualifying stock holdings, but the rules are complex and require careful analysis.
Potential qualification typically requires meeting strict criteria, such as:
- C-corporation structure
- Company had less than $75 million in assets when stock was acquired
- Three to five-year plus holding period from acquisition date
- Stock acquired in exchange for services (not secondary purchase)
- Company meets certain "active business" requirements
- Above criteria change depending on the QSBS issuance date
QSBS rules under Section 1202 of the Internal Revenue Code are intricate and frequently misunderstood.
Critical points:
- QSBS analysis requires professional review of your specific situation
- Qualification often requires documentation from years earlier (83(b) elections, exercise dates)
- Gather and verify documentation now, not when you need it later
Step 4: Coordinate Your Advisory Team
Based on our experience, some of the most common challenges arise from uncoordinated advice.
Your CPA models your taxes but doesn't coordinate with your investment strategy.
Your financial advisor builds a portfolio but doesn't understand the equity compensation tax rules.
Your estate attorney sets up trusts but doesn't coordinate timing with your liquidity event.
The result? Critical opportunities fall through the cracks, and you end up paying far more in taxes than you needed to.
Who Needs to Be Involved?
The roles described below are illustrative and may vary based on an individual’s needs and existing professional relationships.
Tax Advisor / CPA
- Model AMT exposure under different exercise scenarios
- Project your tax liability for the year of the IPO
- Determine if QSBS applies and how to document it
- Plan for estimated tax payments
Financial Advisor
- Build your post-liquidity investment strategy
- Help you decide how much equity to sell and when
- Coordinate equity decisions with your broader financial plan
- Stress-test concentration risk
Estate Planning Attorney (if applicable)
- Set up trusts or gifting structures before the IPO
- Help with charitable planning strategies
- Review beneficiary designations and estate documents
At Brickley Wealth Management, we provide both CPA services and financial advisory services, or we coordinate closely with your existing professionals, as appropriate. The key is getting everyone aligned before the IPO, not during or after.
Your Action Plan
If your company is approaching an IPO, here's your action plan:
☐ Document your equity Pull your option agreements, grant letters, and equity statements. Know exactly what you own.
☐ Perform a tax projection Work with your CPA to model what exercising options would cost you in AMT. Understand the tradeoffs.
☐ Evaluate QSBS eligibility Determine if your shares qualify. If they do, make sure you have documentation of your 83(b) filing and acquisition date.
☐ Decide if early exercise makes sense Consider the tax impact, your cash position, your confidence in the company, and your timeline. Don't make this decision alone.
☐ Get your advisory team talking Schedule a meeting with your CPA, financial advisor, and attorney. Make sure everyone understands the timeline and the decisions that need to be made.
☐ Set up a plan for what comes next After the IPO, you'll need a diversification strategy. Start thinking about how much you'll sell, when, and what you'll do with the proceeds.
How We Help
This is one way Brickley Wealth Management supports clients preparing for an IPO.
When you're preparing for an IPO, you need:
- Tax modeling to understand the impact of different decisions
- Investment planning to design your post-IPO strategy
- Coordination to make sure nothing falls through the cracks
- Support with implementation decisions, where appropriate
We help clients coordinate the financial and tax aspects of pre-IPO planning to support long-term financial sustainability.
Approaching an IPO and not sure where to start? We help clients navigate pre-IPO planning considerations through integrated tax and investment guidance.
Next in this series: Should I Exercise ISOs Before an IPO?—a deep dive into the single highest-impact decision most people face.