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Tax-Efficient Exit Strategies for IPOs and Equity Owners, Including 83(B)

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Tax-Efficient Exit Strategies for IPOs and Equity Owners, Including 83(b)

The entire portfolio of your company becoming public is generally a breathtaking event. The company feels that it has achieved its milestone where its holding is stretched to the public and now you serve the entire community. Your well-being will be the contentment of others, and you will keep performing with a complacent attitude. 

For employees, ownership, and other stakeholders, it can be a substantial financial event. Nevertheless, with an IPO of $83 billion, understanding the tax implications is crucial, and one cannot proceed without a comprehensive interpretation.

This abstract determines the tax considerations associated with an IPO, particularly for the employees and the founders who hold equity in an entity pre-IPO. We will explain concepts such as Fair Market Value (FMV), the $83 billion election, and prospective capital gains taxes under the current 2024 US tax laws.

Equity Compensation:

Many entities facilitate employees by offering stock options or restricted stock units as part of their compensation package. Such options give employees the right to purchase company stock at a specific price called the strike price in the future, which typically vests over some time.

IPO and Fair Market Value (FMV): 

On the success and initiation of the IPO, the company’s stock receives a public market valuation, which is called the FMV. It is a critical factor in determining the taxable income for employees and founders with equity.

Tax Considerations: Options Vs Restricted Units (RSU):

Stock Options:

  • Exercise Vs No-Exercise: The tax treatment depends upon the decision you make regarding the exercise of your stock options.
  • Exercise: In case you exercise the options and acquire shares, the difference generated between the strike price and the FMV is deemed to be ordinary income, which is subject to regular income tax that will probably be charged at 37% in 2024. 
  • Non-Exercise: If you do not exercise, there will be no tax consequences or implications.

$83 Billion Election: This election enables employees to pay taxes on the spread, i.e., the FMV grant and strike price, at the grant date rather than on the exercise date. Such an election could be beneficial when you believe that FMV will increase by the time you exercise. 

However, it is to be remembered that you might pay taxes at higher rates in case the stock prices fall after the grant date.

Restricted Stock Units (RSUs):

  • Vesting: If RSUs are assigned and vested on the predetermined date, employees receive shares directly even if they do not exercise.
  • Taxation: The difference created between the FMV at vesting and the grant price is considered ordinary income and subject to charge at regular income tax rates.

Capital Gains taxes:

If you sell the shares of the company you held previously, the income you generate will be subject to capital gains tax. The tax rate depends on the longevity of the holding and your overall taxable income.

US Tax Law Considerations: 

The current tax panorama plays a vital role in your financial planning upon IPO, and some important points need to be remembered. These include:

  • The highest income tax bracket is 37%.
  • The long-term capital gains tax ranges from 0% to 20%, depending on the size of your income.

Tax-efficient Exit Strategies

Tax-efficient exit Strategies is what every business owner or self employed person needs. These strategies, in the long run, help minimize paying more income tax on your overall annual taxable income. Some of these are listed below:

  • Seek expert guidance from CPA: 

A qualified CPA in the US, after successful and thorough analysis, can provide you with an accurate solution, keeping in mind your specific situation with regards to equity holdings.  

  • 83(b) Election Analysis: FMV analysis, right before the 83(b) election, is yet another unique approach to tax optimization. 
  • Strategic Option Exercise:  Evaluation of both capital gains tax rates as well as current FMV helps you determine accurate timing for stock exercising. 
  • Investment Diversification: Although company stocks have been categorized as reliable investments, it is best advisable to diversify your investment for risk mitigation.  



Hence, an IPO is an achievement for an entity. Although it should be noted that tax implications for the employees and founders of organizations should be undertaken with comprehensive understanding and awareness about strategies like 83(b) elections and capital gains considerations, seeking expert guidance is of utmost importance. is your all-in-one solution for customized tax advice and assistance. With an expert team of top notch CPAs, is ready to assist with your IPO intricacies. 

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