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Your Company Is Going Public: 7 IPO Stock Planning Strategies to Consider

Carson Strom |

For employees, executives, founders, and early investors, an initial public offering (IPO) can represent an important financial milestone. Shares that were previously held in a privately owned company may soon become publicly traded, potentially creating new opportunities for liquidity and diversification.

However, an IPO also introduces financial planning decisions involving taxes, investment risk, stock restrictions, and the timing of potential sales.

While much of the attention surrounding an IPO focuses on the company's initial stock price, shareholders should also consider what happens before and after the company goes public.

Developing a plan before the IPO can help shareholders better understand their options, anticipate potential tax liabilities, and prepare for important financial decisions.

Below are seven planning strategies worth considering if you own equity in a company preparing to go public.

1. Understand Exactly What Type of Equity You Own

Before developing an IPO strategy, it is important to understand what you actually own. Not all equity compensation or ownership interests receive the same tax treatment.

Common types of equity include:

  • Common or restricted stock: Shares that may have been purchased or awarded before the IPO, potentially subject to vesting and transfer restrictions.
  • Incentive Stock Options (ISOs): Employee stock options that may qualify for favorable capital gains treatment if certain holding-period requirements are satisfied.
  • Nonqualified Stock Options (NQSOs): Options that generally create ordinary income when exercised, based on the difference between the exercise price and the stock's fair market value.
  • Restricted Stock Units (RSUs): Equity awards that generally create ordinary income when the underlying shares are delivered, subject to the award's terms and applicable tax rules.

Some private-company RSUs also contain a double-trigger vesting provision, meaning both a service requirement and a liquidity event, such as an IPO, must occur before shares vest or are settled.

These distinctions matter because an IPO does not necessarily trigger the same tax consequences for every shareholder.

For a more detailed explanation of stock-option taxation, see our article on Employee Stock Options: Understanding the Tax Implications and Planning Opportunities.

2. Understand IPO Lockup Periods and Selling Restrictions

One of the most common misconceptions about an IPO is that existing shareholders can immediately sell their shares once the company begins trading publicly.

In reality, many employees, executives, and early investors are subject to a lockup period, during which they are contractually prohibited from selling shares.

A traditional IPO lockup period often lasts approximately 180 days, although the actual duration and restrictions can vary significantly.

Even after the lockup expires, shareholders may face additional limitations, including:

  • Company trading windows and blackout periods
  • Insider trading policies
  • Securities resale restrictions under SEC Rule 144
  • Restrictions affecting corporate executives, directors, and other affiliates

Certain insiders may also consider establishing a Rule 10b5-1 trading plan, which allows transactions under a predetermined arrangement when applicable conditions are met. These plans have specific requirements, including adoption while not aware of material nonpublic information and mandatory cooling-off periods.

The important takeaway is that an IPO does not necessarily mean immediate liquidity. Understanding when and how shares can be sold is an essential part of preparing a financial plan.

3. Evaluate Stock Option Exercises Before the IPO

For employees holding stock options, the timing of an exercise can significantly influence taxes, liquidity needs, and investment risk.

Consider two common situations.

Nonqualified Stock Options

Exercising NQSOs generally creates ordinary compensation income equal to the difference between the stock's fair market value and the exercise price.

Exercising before an IPO may result in a smaller taxable spread than exercising after a substantial increase in the company's valuation. However, it may also require paying an exercise price and taxes before the employee has access to a public market for the shares.

Incentive Stock Options

ISOs generally do not create regular federal income tax upon exercise, but the difference between fair market value and exercise price can create an alternative minimum tax (AMT) adjustment.

Exercising before an IPO may start the holding period required for favorable ISO treatment earlier, but it also introduces the possibility of an AMT liability without the liquidity necessary to pay it.

Employees should carefully evaluate the costs and risks before exercising privately held options.

In some cases, early exercise of options or transfers of restricted stock may also create an opportunity for a Section 83(b) election. When applicable, this election generally must be filed within 30 days of the transfer of substantially nonvested stock. It is not available for the grant of RSUs.

These decisions require careful tax analysis because exercising early or making an 83(b) election can create costs or tax consequences even if the stock later declines in value or is forfeited.

4. Determine Whether Your Shares Qualify for QSBS Tax Benefits

One potentially valuable tax consideration for early shareholders is Qualified Small Business Stock (QSBS) under Section 1202 of the Internal Revenue Code.

When the requirements are satisfied, QSBS can allow eligible shareholders to exclude a portion or potentially all of their capital gains from federal income tax, subject to applicable limitations.

Eligibility depends on several factors, including the company's corporate structure, its size when the shares were issued, the nature of its business, how the shares were acquired, and how long they have been held.

Legislation enacted in July 2025 expanded certain QSBS benefits. For qualifying shares acquired after July 4, 2025, the law generally allows:

  • A 50% federal gain exclusion after a three-year holding period
  • A 75% federal gain exclusion after a four-year holding period
  • A 100% federal gain exclusion after a five-year holding period

For qualifying shares acquired on or before July 4, 2025, the prior holding-period rules generally require more than five years, and the exclusion percentage depends on the acquisition date.

Dollar limitations and other eligibility requirements also apply. State tax treatment may differ from federal treatment.

Importantly, an IPO does not automatically eliminate QSBS eligibility for previously acquired qualifying shares.

Shareholders should review potential QSBS eligibility with their tax advisors before selling, particularly when a planned sale occurs near an important holding-period threshold.

However, holding shares longer to pursue a potential tax benefit also creates additional exposure to stock price fluctuations.

5. Develop a Diversification Strategy Before Your Shares Become Liquid

An IPO can create a situation in which a substantial portion of an individual's net worth is concentrated in a single company.

For employees and executives, that concentration may be even greater when considering that their salaries, bonuses, career opportunities, and future equity compensation are also tied to the company's performance.

While retaining company stock provides continued participation in its potential growth, it also creates the risk that an unfavorable development at one company could substantially affect an individual's overall financial position.

A diversification strategy might involve selling shares gradually as permitted, rather than attempting to identify the perfect time to sell.

Before the IPO, shareholders may want to consider:

  • What percentage of their total net worth is represented by company stock?
  • How much of that position would they be comfortable retaining long term?
  • Are there upcoming financial goals that could benefit from additional liquidity?
  • Would a significant decline in the company's stock price affect their retirement or other financial plans?
  • How will potential sales affect their income taxes?

It can also be helpful to evaluate several scenarios involving different future stock prices.

The goal is not necessarily to sell every share immediately or to hold indefinitely. Instead, it is to develop a strategy that balances future growth opportunities, investment risk, taxes, and personal financial objectives.

Diversification can reduce single-company risk, although it cannot eliminate market risk or guarantee positive investment results.

6. Plan for Capital Gains Taxes and Cash Flow Needs

A successful IPO can create substantial taxable income for shareholders who exercise options, receive vested equity compensation, or sell appreciated stock.

The tax consequences will depend on how the shares were acquired, their cost basis, applicable holding periods, and the shareholder's broader financial situation.

For example, selling stock held for more than one year generally qualifies for long-term capital gains treatment, while gains on stock held for one year or less are generally taxed at ordinary income tax rates. Special rules apply to certain equity compensation transactions.

Higher-income taxpayers may also be subject to the 3.8% Net Investment Income Tax on applicable investment gains, in addition to state taxes.

Another important consideration is that employer tax withholding on equity compensation may not cover the employee's entire tax liability.

Before selling a significant stock position, shareholders should consider preparing tax projections that evaluate:

  • Federal and state income taxes
  • Short-term versus long-term capital gains
  • Potential AMT consequences
  • The timing of sales across multiple tax years
  • Estimated tax payments and cash reserves
  • Other financial planning decisions affected by increased taxable income

Tax-efficient planning can be valuable, but it should not be the only factor driving investment decisions. Delaying a sale solely to achieve a lower tax rate can create additional investment risk.

7. Consider Charitable Giving and Estate Planning Opportunities

For shareholders whose company stock has appreciated substantially, an upcoming IPO may also create charitable and estate planning considerations.

Charitable Giving

Individuals with charitable intentions may consider donating appreciated shares directly to a qualified charitable organization or donor-advised fund rather than first selling the shares and donating the cash proceeds.

In appropriate circumstances, donating shares held for more than one year may allow the donor to avoid recognizing the capital gains on the donated shares while potentially qualifying for a charitable deduction.

However, the treatment depends on the holding period, recipient organization, and applicable tax limitations.

Donating shares before an IPO can introduce additional complications involving transfer restrictions, valuations, qualified appraisals, and the timing of any anticipated sale.

Estate Planning

Shareholders expecting a significant increase in wealth may also want to review their estate plans before the IPO.

Depending on their financial circumstances, potential planning opportunities could involve lifetime gifts, irrevocable trusts, or other wealth transfer strategies.

These techniques can carry significant tax, legal, and financial consequences. Transfers may also be restricted by company agreements or securities laws.

For individuals considering these strategies, coordination among their financial advisor, CPA, and estate planning attorney is particularly important.

Don't Wait Until the IPO to Start Planning

For shareholders of a private company, an IPO can create new financial opportunities. However, it can also introduce complicated decisions involving taxes, liquidity, and concentrated investment exposure.

Some planning opportunities may need to be evaluated well before the company begins publicly trading. Others, including the timing of sales and portfolio diversification, may become more relevant after the IPO and the expiration of applicable restrictions.

The appropriate strategy will depend on the type of equity owned, applicable tax rules, the shareholder's financial circumstances, and their long-term objectives.

At WebsterRogers Financial Advisors, we help clients evaluate concentrated stock positions, equity compensation, tax-aware diversification strategies, and how these decisions fit into a comprehensive financial plan.

If you own shares in a company preparing to go public and would like to discuss your planning considerations, we encourage you to contact our team.

Sources and Additional Reading

Disclosure: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. While we strive to present accurate and up-to-date information, the financial, tax, and legal landscape is subject to change, and individual circumstances vary. Readers are encouraged to consult with a qualified financial advisor or professional before making any financial decisions or implementing strategies discussed in this post. Our firm does not guarantee the accuracy, completeness, or suitability of the information provided, and we disclaim any liability for any direct or indirect damages arising from the use of this information. Artificial Intelligence was used to assist in the writing of this article. Past performance is not indicative of future results. Any investment involves risk, and individuals should carefully consider their financial situation and risk tolerance before making any investment decisions.

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