The Four Factors That Should Drive Your Equity Tax Strategy

Tara Shulman is a Principal Wealth Advisor at Compound. She has extensive experience guiding clients at companies such as Figma, Anthropic, and Coinbase through IPOs, tender offers, and other company liquidity events.

This was originally published in Forbes.

When you’re approaching a liquidity event — an IPO, acquisition, or tender offer — you probably want to know one thing: what’s the take home after taxes?

If only a single strategy could minimize what you owe and maximize what you keep.

It’s normal to want that; to think the right move comes after you run the numbers. But those numbers don’t know your goals, your liquidity needs, or how much risk you’re actually willing to carry.

The tax math does matter — but it’s a tool for evaluating decisions, not a reason to make them. When it becomes the only lens, you stop asking what you need the money to do, and start optimizing for the tax answer instead of your actual goals. The math might feel good, but a number without context isn’t a strategy.

Once you know what the money from your liquidity event needs to do, the tax strategies that make sense become a lot clearer. For high earners with equity, there are several worth understanding, such as tax-loss harvesting, donor-advised funds, charitable remainder trusts, and QSBS. Some of these need to be set in motion years before a liquidity event. Others are implemented after the liquidity event.

Knowing how to put each strategy into play matters. But which ones make sense for your situation (and deciding whether the trade-offs are worth it) is the real money question.

Key takeaways: 

• Tax efficiency shouldn't be your only goal. Tax efficiency is one input, not the whole plan. Over-optimizing for it can lock you into decisions — irrevocable trusts, concentrated positions held too long — that are difficult to undo. 

• Your personal financial situation matters more than any single tax strategy. There's no universal "best" strategy. The right answer depends on your liquidity, your goals, and how much risk you can take.

• The best time to plan is long before your liquidity event or tax season. The best time to start this conversation with an advisor is before you're granted equity, not when a liquidity event is already in sight.

Why Solving For Taxes Isn’t a Full Strategy

People going through a liquidity event often have one question: How do I save on taxes? 

It makes sense, because it feels like there should be a single answer. Math can provide you some comfort and certainty. It's easy to default to the tax answer that looks good on paper and make decisions from there.

But “how do I save on taxes?” is the wrong entry point because there is no single answer.

The answer is highly dependent on your financial situation and your financial goals.. 

And when that question becomes the only lens you build around, you risk:

• Over-gifting to irrevocable trusts
• Under-diversifying a concentrated position
• Waiting for long-term capital gains treatment while the stock slips enough that selling earlier at short-term rates would have netted you more

It’s important to remember that stock can go to zero. It doesn’t always feel that way when you’ve spent years building the company — especially when paper wealth is turning into real money during a liquidity event.

So making decisions purely based on minimizing taxes — especially under the assumption that it will continue to rise — can leave you optimizing for a future that never arrives.

Tax optimization is an important goal, but it can't be your only one. 

Four Factors That Should Actually Drive Your Tax Strategy

The tax answer feels good because it has a structure to it. It tells you: If you do this, your liability changes by this much. That certainty is appealing, especially when you're facing a large financial decision with a lot of moving parts.

But the tax strategy largely depends on what you’re trying to achieve. Before you can know which strategies make sense for your situation, you need clarity on four questions.

Factor 1: What’s your financial situation right now? 

The first thing to answer is what money you have outside your equity.

Whether you can afford to exercise options, contribute to a trust, or hold a concentrated position depends entirely on what your current financial situation is.

You may have liquidity elsewhere, or you may not. That determines which strategies are actually on the table for you.

For example: Someone that has a $10M net worth and $150K in annual spend, likely has $25-50K available to exercise their options. That opens up strategies earlier, such as QSBS, contributing equity to a trust before it appreciates, or starting long-term cap gains well in advance of a liquidity event. Someone without that cushion faces a narrower set of options. 

Your cash situation determines which decisions are even available to you — and no tax strategy changes that.

Factor 2: What are your goals?

Your goals tell you two things: how much capital you need, and when you need it. 

If you know you're buying a home or funding tuition in the next few years, that shapes which strategies you should consider..

If your goals are more open-ended — like saving for retirement — or you have no short-term money needs, you have more room to make decisions based purely on how much risk you want to take.

Short-term is easy to identify because they’re concrete: buying a house, paying for tuition, or going on a big trip..

Long-term can be harder to pin down, but it matters just as much. Think about what you want your retirement to look like (and when). And think even beyond that: What do you want to leave behind as your legacy? If you want to leave wealth to your family, how your estate is structured now affects what they’ll actually inherit later.

If you have a short-term goal, that could mean selling and diversifying sooner to make sure you have the cash — even if you’re paying short-term capital gains.

If leaving a legacy matters to you, that changes the conversation entirely. Moving equity into a trust while it's still worth less, so it grows outside your estate, is a completely different move than someone who needs liquidity in the near-term.

Factor 3: How much risk can you handle? 

Your ability to take risks and your preference for taking risks aren't the same thing. 

Two people can have identical balance sheets and make completely different decisions, and both can be right. What usually drives the difference is whether they have a concrete near-term need, and knowing that you are potentially taking on risk. 

If you know you need a down payment in two years, staying concentrated in a single stock is a risk you may not be able to afford — and one you might regret. But if you’re earlier in your career with no immediate financial obligations, you may be willing to let it ride. 

The key is honestly assessing your ability to take on risk — not just your appetite for it.. Once you understand how much risk you’re willing to tolerate, your advisor can help devise a plan that will minimize regret regardless of potential outcomes. 

Factor 4: What could happen in the future? 

Even if you're on the inside and feel confident about the pipeline, you can’t control the fate of your company, let alone the outside factors. Global conflicts, policy shifts, and market conditions can all move a stock independent of how the company is actually performing. 

And the certainty of a tax calculation (the math) can make it easy to treat the future as more stable than it actually is — you think you know exactly what you'll save by waiting twelve months, but you don't know what the stock will do in that window.

For example: If you wait for long-term capital gains treatment and the stock slips by even 15%, it may have actually been better for you to sell right earlier at short-term capital gains.

Strategies That Can Help You Optimize (and Mitigate) Your Taxes

Once you’ve worked through those four questions, you’re in a much better position to evaluate what’s actually available to you, or which ones you want to focus on.

Again, most of these aren’t overnight “fixes” that immediately lower your tax liability. That’s why planning early is helpful. Tax optimization is typically a long-term game, and the strategies that move the needle the most are usually the ones you start early.

Here are some worth knowing, and ones I often discuss with clients depending on their goals.

Tax-loss harvesting/direct indexing 

With tax-loss harvesting, you’re looking for holdings in your portfolio that have declined in value and selling them at a loss — then swapping into something similar for 30 days so you stay invested in the market. After that window, you can buy back into the original holding. That loss you locked in can be carried forward indefinitely to offset gains elsewhere, including from a liquidity event.

Say you invested $100k into a position that’s now worth $90k. You sell, capture the $10K loss, stay invested in something comparable, and after 30 days you’re back in your original position. Do that consistently across a portfolio and it adds up. 

Many people understand the basic concept, but don’t always realize how much can be generated proactively. The tools available have expanded significantly — from direct indexing strategies built to maximize harvesting across individual positions, to long/short approaches designed specifically to create tax alpha. The opportunity is larger than most people expect.

The tradeoff is that it requires having a diversified portfolio to work with in the first place. If your wealth is concentrated in a single stock, there’s less to harvest. And the benefits build over time, not overnight. If you're already approaching a liquidity event without this in place, the window to make a meaningful impact is narrow.
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Donor-advised funds (DAFs) 

A donor-advised fund, or DAF, is essentially a charitable holding account. You contribute cash or assets, get the tax deduction immediately, and then have the rest of your life to decide which charities actually receive the funds. The money can stay invested and continue to grow in the meantime.

Where this becomes particularly useful around a liquidity event is timing. Say you normally give $20K a year to charity, but this year you’re realizing $1 million from a tender offer. Rather than spreading donations across multiple years at your normal income level, you can bunch several years of giving into the DAF in that high-income year. This way you take the full deduction when your tax liability is highest, while staying flexible about where the money ultimately goes.

The key is having a long-term giving strategy mapped out ahead of time. Matching your DAF contributions to your highest-income years is how you maximize the tax benefit. But if you’re scrambling to figure out your charitable intentions at the last minute, you lose that optionality. And it’s worth knowing that once money goes into a DAF, it’s committed to charity and you can’t get it back.

Charitable remainder trusts

A charitable remainder trust (CRT) lets you contribute stock to an irrevocable trust, sell it tax-free inside the trust, and draw a stream of income off those proceeds for the rest of your life. At the end of the trust term, whatever remains goes to charity, and you get a charitable deduction when you make the initial contribution.

Say you have $5 million in stock that’s about to become liquid. Rather than selling it all outright and absorbing the full tax hit, you contribute a portion to a CRT, sell inside the trust tax-free, and draw income from it over time. You keep other assets outside the trust for flexibility.

The tradeoff is control. Once assets go into a CRT, that decision is permanent — and if your liquidity event comes in lower than expected, or your plans change, you can’t claw it back. That’s the tension with most estate planning strategies: the more tax-efficient the structure, the more you’re typically giving up flexibility. 

These aren’t decisions to make under pressure or in isolation. The value of working with an advisor who has seen these play out in the real world is understanding not just how much you could save, but what you might have to live with down the road.

QSBS

QSBS, or qualified small business stock, is designed for early equity holders in qualifying C-corps. If you acquired your equity while the company had $75M or less in assets (recently updated from the prior $50 million threshold due to the OBBA), you may be eligible to exclude a significant portion of your federal capital gains tax entirely — up to $15 million or 10 times your original investment, whichever is greater.

For stock acquired after July 4, 2025, the exclusion is tiered: 50% at three years, 75% at four, and 100% at five. For stock acquired before that date, you need the full five-year hold for the 100% exclusion.

Say you exercised options early at a $2 million valuation and your company later sells at a much higher number. If your equity qualifies, up to $15 million of that gain could be excluded from federal tax entirely. At earlier stages, a relatively small investment to exercise and start that clock can be one of the highest-return decisions you make

The catch is timing. QSBS eligibility has to be established before the company grows past the asset threshold. Once that window closes, it’s closed. It’s one of the clearest examples of why starting the planning conversation early matters. By the time a liquidity event is on the horizon, this particular door may already be shut.

Start With the Outcome, Not the Tax Answer

Remember to ask: What does a good outcome look like for me?

Tax optimization is an important piece, but it works best when it’s solving the right problem. And the people who navigate liquidity events well are the ones who have their goals in sight and build everything around them.

That clarity won't come on its own. The decisions you make with your money — what access you give up, how you hold risk, how you eventually spend your capital — are a very personal experience.

The most valuable move you can make right now — whether a liquidity event is years out or already in motion — is to start asking the right questions around your tax optimization strategy. An advisor can help you answer them well before you're sitting across from a tender offer with two weeks to decide.
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FAQs

When should I start thinking about tax mitigation strategies?

When you sign your equity agreement. Your advisor can work with you to understand what the equity is worth at signing, what your tax exposure looks like from day one, and whether the package makes sense for where you are financially. If you’re already facing a liquidity event — whether it’s an IPO, acquisition, or tender offer — start the conversation now. The sooner you plan, the more flexibility you have. 

What's the biggest mistake people make with equity and taxes?

Letting the tax math drive every decision. When you optimize purely for tax efficiency, you can end up over-concentrated in a single stock, over-committed to irrevocable structures, or holding too long.

How do I know which mitigation strategy is right for me?

Start by asking three questions: Do I have the liquidity to exercise my options or contribute to a trust? Do I have specific goals — a home, tuition, a family legacy — that require access to this capital? And what's my actual preference for risk, separate from what I can technically afford to take?