Selling your company equity can feel like crossing a significant milestone. Years of hard work, late nights, and growth have paid off.
However, when the dust settles, many entrepreneurs and tech professionals are shocked by the following tax bill. Without the right strategies, you could lose a significant portion of your proceeds to taxes.
At Bradley Wealth, we believe tax optimization isn’t just about saving money — it’s about aligning your wealth with the life you’ve worked so hard to build.
Below, we’ll walk you through key tax strategies to consider after selling company equity so you can keep more of what you’ve earned and stay focused on your long-term goals.
Why Tax Optimization Matters After an Equity Sale
Equity sales often bring unexpected tax challenges. This moment is not just a financial event — it’s a pivotal opportunity to make thoughtful decisions that protect your wealth and reflect your long-term vision. As you sell, you may encounter:
- Capital gains taxes at both the federal and state levels
- The Net Investment Income Tax (NIIT)
- The Alternative Minimum Tax (AMT) on stock options
Together, these factors can push your tax liability much higher than anticipated. Beyond the numbers, taxes directly affect how much you can invest in your family, charitable causes, and future legacy.
Early tax planning helps you stay in control and avoid unpleasant surprises.
Key Strategies to Consider for Tax Optimization After Selling Company Equity
Each tax strategy plays a specific role in protecting your wealth after selling your business.
Before looking into the technical options, it’s essential to understand how these strategies work together to minimize taxes, preserve more of your proceeds, and align your financial decisions with your life’s broader vision.
Leveraging Long-Term Capital Gains Treatment
Capital gains tax rates vary according to how long you hold the company shares. If you sell shares you’ve owned for less than a year, they’re taxed at your regular income rate. If you keep them for over a year, you lock in at the lower long-term rate, usually 15–20%.
This difference can dramatically reduce your tax bill. Whenever possible, it’s worth timing your sale to qualify for long-term treatment.
Using Qualified Small Business Stock (QSBS) Exclusions
If your company meets the criteria for a “Qualified Small Business” under IRS Section 1202, you may be eligible to exclude up to $10 million — or 10 times your investment basis — in gains from federal taxes.
To meet these criteria, the shares must be held for at least five years, the company’s assets must be $50 million or less when stock is issued, and the business must be in an eligible industry.
This strategy can be a powerful tax saver, but it’s easy to overlook without early planning.
Strategic Charitable Giving Post-Sale
If you’re passionate about giving back and want your wealth to reflect your values, charitable giving is an effective way to reduce taxes while making a meaningful impact. Here are two personalized strategies to explore:
- Donor-Advised Fund (DAF): Contribute appreciated stock to a DAF to claim a charitable deduction and avoid capital gains on that portion.
- Charitable Remainder Trust (CRT): Donate stock into a trust that pays you income over time, with the remainder going to charity.
This approach spreads taxes and generates a deduction. It’s a strategy best explored with a wealth advisor who knows how to help you through the legal, tax, and financial implications to ensure it aligns seamlessly with your overall legacy and giving goals.
Deferring Taxes with Installment Sales or 1031 Exchange
In some private company sales, it’s possible to structure an installment sale, or payments over several years, to pay taxes as each payment arrives. While not as typical with equity sales, it is a potential option worth discussing if a buyer is amenable.
A 1031 Exchange, while typically used for real estate, may apply to certain asset sales in rare cases. This exchange allows you to postpone paying capital gains taxes by reinvesting your earnings into a similar type of property.
If you’re unsure whether it applies to your situation, consult your tax advisor early.
Net Unrealized Appreciation (NUA) for Company Stock in Retirement Plans
If you own company stock inside a 401(k) or similar plan, you may be able to use NUA rules to pay capital gains tax on the stock’s appreciation when it’s distributed, helping you avoid higher income tax rates.
This strategy only works if the stock is distributed “in-kind,” meaning you take the actual shares out of the plan instead of selling them inside the account. It also requires you to withdraw the entire retirement plan in a single calendar year, which can have other tax consequences to consider.
Common Tax Mistakes Entrepreneurs Make
Many high earners fall into avoidable tax traps when selling company equity. It’s a process that can feel overwhelming without working with a wealth advisor who can help you navigate the intricate tax landscape and safeguard your hard-earned wealth.
Some of the most common mistakes include:
- Forgetting state tax implications, which can add a significant layer of taxation.
- Accidentally triggering AMT by exercising Incentive Stock Options (ISOs) without tax planning.
- Selling all shares at once, pushing themselves into higher tax brackets.
- Missing out on QSBS eligibility due to overlooked documentation or eligibility rules.
Working with an advisor before placing the sale in motion can prevent these costly oversights. A knowledgeable advisor can not only reduce your tax burden but also align each decision with your broader financial and legacy goals.
Work With a Trusted Advisor Who Understands Complex Equity Sales
Selling company equity is a unique milestone. You deserve an advisor who understands stock options, equity compensation, and exit planning; collaborates with your CPA and attorney for cohesive guidance; and tailors advice to your personal goals, not a cookie-cutter plan.
At Bradley Wealth, we believe your wealth should work as intentionally as you do. Let’s design a strategy that honors your success while securing your future.
Discover your true wealth — schedule a private consultation.
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