
When life-changing liquidity events like an IPO, merger or business sale are on the horizon, the stakes couldn’t be higher. Yet, too often, people rely on questionable advice from sources like Reddit threads, Slack channels, private communities or outdated articles—missing opportunities to safeguard their wealth.
To cut through the noise, we recently hosted a webinar designed for founders, executives and employees approaching an IPO or who have recently gone public. It also resonated with tech and biotech employees at high-growth companies like Databricks, Stripe and Chime, as well as individuals with equity compensation or those weighing tender offers or recapitalization events.
With years of experience guiding clients through these pivotal moments, we’ve identified the five most expensive mistakes people make before and after a liquidity event—and, more importantly, how to avoid them. Here’s a closer look at these common pitfalls and actionable steps to help you make the most of your financial opportunity.
Protect your wealth during life-changing milestones like IPOs, tender offers, mergers and acquisitions. |
How to avoid paying excess taxes from a liquidity event
Mistake #1: Handing millions to the IRS
The risk: Without proactive tax planning, liquidity events can trigger significant tax liabilities that eat away at your wealth.
How to avoid it:
- Understand the tax rules governing your holdings. Know how ISOs, NQSOs and capital gains (long-term vs. short-term) impact your tax bill. Timing your stock sales across multiple years can help manage your liability. It may be advisable to spread your tax cost over several years to reduce the overall tax incurred.
- Consider the 83(b) Election: An 83(b) election allows you to pay taxes upfront on the fair market value of your restricted stock at the time of the grant. This strategy can significantly reduce your tax burden if the stock appreciates in value over time. To take advantage of this election, you must file it with the IRS within 30 days of receiving the stock grant.
- Leverage QSBS exclusions: If your holdings qualify, the Qualified Small Business Stock (QSBS) exemption allows you to exclude up to 10 times your investment or $10 million, whichever is greater—or more—of capital gains from federal . Additionally, by using strategies like QSBS stacking—distributing shares into multiple trusts—you may be able to multiply the exemption amount, significantly increasing your tax savings.
Example
Ravi was granted shares valued at $100,000 at the time of the grant. When the shares vested, they were valued at $8 million. Ravi had made an 83(b) election, opting to pay the taxes upfront on unvested shares.
In this example, Ravi saved over $1 million in taxes and was able to control when the capital gains taxes would occur as a result of his sales. |
Want a step-by-step guide to navigating tax strategies like 83(b) and QSBS?
Download Smart Money Moves – Managing QSBS, Equity Comp & Liquidity Events.
Why you should diversify your portfolio after a liquidity event
Mistake #2: Betting it all on one stock
The risk: Holding too much of your wealth in a single stock exposes you to significant market volatility and potential losses.
How to avoid it:
- Create a diversification strategy: Gradually sell shares to reduce risk while managing tax liability. A staged approach can help protect your financial future.
- Use tax-loss harvesting: Offset gains by strategically selling underperforming assets. This technique minimizes taxes and keeps your portfolio balanced. There are also more advanced tax-loss harvesting techniques that can allow you minimize taxes, without having to realize an offsetting investment loss.
Pro tip: Avoid waiting for a “perfect” stock price to sell. A disciplined approach ensures long-term stability, even in volatile markets.
Ready for a deeper dive? Watch our 30-minute webinar replay to see these strategies in action. |
How to preserve your wealth with estate planning
Mistake #3: Letting the IRS take 40% of your estate
The risk: Without estate planning, a substantial portion of your wealth could be lost to taxes when passing assets to heirs.
How to avoid it:
- Plan early: Use advanced tools like irrevocable trusts or GRATs (Grantor Retained Annuity Trusts) to shield wealth from excessive taxation.
- Maximize generational wealth transfer: Strategic planning ensures that your heirs can retain more of the wealth you’ve built while minimizing estate taxes.
How to use charitable giving to reduce taxes
Mistake #4: Missing out on hidden tax breaks
The risk: Overlooking tax-saving opportunities in charitable giving can mean paying more taxes than necessary.
How to avoid it:
- Leverage Donor-Advised Funds (DAFs): By contributing appreciated stock to a DAF, you can avoid capital gains taxes and receive a full charitable deduction for the fair market value.
- Explore Charitable Remainder Trusts (CRTs): CRTs let you secure an income stream while supporting causes you care about. This strategy also reduces taxes and creates a lasting philanthropic impact.
Why an IPO is a new financial chapter
Mistake #5: Treating Your IPO Like the Finish Line
The risk: Viewing a liquidity event as the endpoint can lead to complacency, missed opportunities and unaligned financial decisions.
How to avoid it:
- Build a holistic plan: Align your new wealth with long-term goals, such as retirement, philanthropy or major purchases.
- Assemble a team of experts: Work with a wealth manager, CPA and estate attorney to ensure all aspects of your financial plan are optimized.
Pro insight: Liquidity events are the beginning of a new financial chapter. Proper planning ensures that your wealth grows sustainably while aligning with your life goals.
Not sure where to start? Schedule a consultation with one of our experienced wealth managers to build a plan tailored to your goals.
Take action: Avoid these costly mistakes
Liquidity events—whether an IPO, merger or acquisition—mark significant milestones in your financial journey. With thoughtful planning, you can avoid costly mistakes, minimize taxes and ensure your wealth aligns with your long-term goals.
Take the first step toward clarity. Download our guide, Smart Money Moves – Managing QSBS, Equity Comp & Liquidity Events, for actionable strategies to start planning today. Want to see how these principles work in real life? Watch our webinar replay to hear how our team helps clients navigate these challenges.
If you’re ready to take action, talk with us. Don’t navigate this complex process alone—partner with an experienced financial advisor who can help you make the most of your liquidity event.
Related resources for liquidity events
- Navigating Liquidity Events: Key Insights for IPOs, M&As and Buyouts
- Equity Compensation Guide: Stock Options, RSUs and Taxes
- RSUs: What You Need to Know About Taxes, Selling Shares and Long-Term Strategies
- When Tech Deals Go Well – Maximizing ISOs
- How to Manage Capital Gaines from Concentrated Stock Positions