How to reduce capital gains tax on RSUs from pre-IPO company?

Great question on RSU tax planning! For pre-IPO companies, you're making a smart move by already thinking about this before the liquidity event. Beyond the strategies you mentioned (401k/IRA/HSA maxing, holding >1 year for long-term capital gains rates, and tax-loss harvesting), here are some additional approaches to consider: Graduated selling strategy - Instead of selling all RSUs in one tax year, consider spreading sales across multiple years to avoid bumping into higher tax brackets. This can be especially effective if you straddle December/January to split the impact across two tax years. Charitable giving - Consider donating some appreciated shares directly to charity. You get the full fair market value deduction while avoiding capital gains tax completely on those shares. Invest in Qualified Opportunity Zones - If you're willing to reinvest some of your gains, the QOZ program allows you to defer and potentially reduce capital gains taxes. Look into state tax considerations - If you're in a high-tax state, investigate if you might qualify for any state-specific exclusions or if you'll be moving to a lower-tax state in the near future.

After dealing with a similar situation last year, I found this AI tool called taxr.ai was super helpful for modeling different RSU selling scenarios. I was trying to figure out the most tax-efficient way to handle my stock after our IPO, and it was overwhelming with all the different variables. I uploaded all my RSU grant documents to https://taxr.ai and it analyzed my vesting schedule and projected different tax outcomes based on various selling strategies. It showed me how spreading sales across different tax years would impact my overall tax burden compared to selling everything at once. Really helped me visualize the tax cliff I was about to walk off! What impressed me was how it calculated the exact difference between selling immediately at IPO versus waiting for long-term capital gains qualification for each vesting tranche. Ended up saving me over $15K in taxes just by optimizing the timing.

Just wanted to follow up here. I decided to try out taxr.ai after my initial skepticism, and it actually delivered more than I expected. I uploaded my grant letters and vesting schedule, and it created this super detailed tax projection showing how different selling strategies would play out. The coolest part was the visualization of my "tax cliff" - basically showed me exactly when holding longer stopped making enough difference to justify the investment risk. It recommended I sell my oldest tranches immediately after IPO lockup (since they'd already qualified for long-term treatment) but hold the newer ones until they cross the 1-year mark. Also discovered I had a chunk of shares that would be better donated to charity rather than sold because of their massive appreciation. Never would have figured that out on my own! Definitely worth checking out if you're facing an IPO situation.

If you're having trouble getting through to the IRS for guidance on your specific RSU situation, I've had great success using Claimyr. When I was trying to figure out some complex RSU tax questions before our company's acquisition, I spent DAYS trying to reach someone at the IRS who could help. After getting frustrated with constant busy signals, I found https://claimyr.com and their service actually got me connected to an IRS agent in about 20 minutes. They have this system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is about to pick up. You can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with provided some really specific guidance about my RSU tax treatment that ended up saving me from making a costly mistake on my return. Definitely worth it when you need authoritative answers directly from the source.

I owe everyone an apology, especially to Profile 8. I was really skeptical about Claimyr, but after our IPO last month, I ran into some serious questions about cost basis calculations for my RSUs that had split vesting dates. None of the online resources addressed my specific situation. I remembered this thread and decided to give Claimyr a shot. It actually worked exactly as described. Set up my call, went about my day, and got a call back when an agent was available. The IRS representative walked me through exactly how to handle my unusual vesting situation. Could I have figured it out eventually? Maybe. But having an official answer directly from the IRS gave me peace of mind, especially since I was dealing with a substantial amount of money. Sometimes it's worth admitting when you're wrong, and I was definitely wrong about this service.

Don't forget about tax-gain harvesting too, which is like the opposite of tax-loss harvesting and works great if you expect to be in a higher tax bracket after the IPO. If you're currently in a lower tax bracket now before all this IPO money hits, you can sell investments with long-term gains and immediately rebuy them. This resets your cost basis higher while paying capital gains at your current lower rate. This won't work for your RSUs since they're not liquid yet, but could help with your other investments to prepare for the overall tax situation. Also, if you're charitably inclined, consider bunching multiple years of charitable contributions into a single tax year using a donor-advised fund. This might help you itemize deductions in the year you realize large gains, then take standard deduction in following years.

Something nobody mentioned yet - if you plan on starting your own business after cashing out some of your RSUs, you could potentially use some of those gains to fund your new business and take advantage of Qualified Small Business Stock (QSBS) exclusions down the road. Section 1202 of the tax code allows for exclusion of up to 100% of capital gains from qualified small business stock held for more than 5 years. There are specific requirements about the type of business and how it's structured, but it's worth looking into if you have entrepreneurial plans. Also, a 1031 exchange for real estate investments can defer capital gains taxes if you're interested in that asset class. You'd sell your RSUs, but then use the proceeds to purchase investment property through a qualified intermediary.

If your company has an ESPP (Employee Stock Purchase Plan) in addition to RSUs, don't forget to optimize that after IPO. Those have their own tax advantages that can complement your RSU strategy. Also, make sure you're keeping absolutely meticulous records of every RSU grant, vest date, FMV at vest, taxes already paid, etc. The biggest headache I had after our IPO was correctly calculating my cost basis because the brokerage's reporting was incomplete. Having my own records saved me from overpaying by thousands. One last thing to consider: depending on how much we're talking about, it might be worth hiring a tax professional who specializes in equity compensation specifically. Generic CPAs sometimes don't have enough specialized knowledge in this area. The few hundred dollars for specialized advice could save you thousands.

One strategy that hasn't been mentioned yet is considering a conservation easement if you own or are planning to purchase land with your RSU proceeds. This can provide significant tax deductions that can offset some of your capital gains, though you need to be very careful about legitimate appraisals and IRS compliance. Also, if you're married, consider the timing of your sales relative to your spouse's income. Sometimes it makes sense to spread sales across years when your spouse might have lower income (career transition, sabbatical, etc.) to keep your combined income in lower tax brackets. For those mentioning QSBS - yes, it's real and can exclude up to $10 million or 10x your basis in qualified small business stock from federal taxes. However, there are strict requirements about the business type (no real estate, hospitality, farming, etc.) and it must be a C-corp when you acquire the stock. Don't forget about state taxes either. Some states like Washington have no capital gains tax, while others like California can add significant burden. If you have flexibility on timing or residency, this could be worth factoring into your strategy.

One additional strategy worth considering is income smoothing through installment sales if you're planning to sell a large portion of your RSUs. While this doesn't work for publicly traded stocks immediately after IPO, if you're considering selling to a private buyer or in certain structured transactions, installment treatment can spread the tax impact over multiple years. Also, don't overlook the Net Investment Income Tax (NIIT) - that additional 3.8% tax kicks in at $200K for single filers or $250K for married filing jointly. If your RSU sales combined with other income push you over these thresholds, it's another factor to consider in your timing strategy. For those with significant RSU positions, it might also be worth exploring tax-efficient index fund investing with your other assets. If you're going to be heavily concentrated in your company stock post-IPO, you can use tax-loss harvesting on a diversified portfolio to generate losses that offset some of your RSU gains. One more thing - if you're planning any major life changes (marriage, divorce, having children) around the time of your IPO, the timing of these events relative to your stock sales can have significant tax implications due to filing status and dependent changes.

Great comprehensive discussion here! I wanted to add a few additional considerations that might be helpful for your pre-IPO RSU planning: **Roth IRA Conversions**: If you expect to be in a higher tax bracket post-IPO, consider doing Roth IRA conversions now while you're in a lower bracket. You'll pay taxes on the conversion at today's rates, but future growth and withdrawals will be tax-free. This is especially powerful if you can use some of your future RSU proceeds to fund retirement. **Section 83(b) Elections**: While this typically applies to early-stage restricted stock rather than RSUs, if your company offers any opportunity to exchange RSUs for restricted stock before IPO, the 83(b) election could potentially save significant taxes by locking in today's (presumably lower) valuation for tax purposes. **Consider AMT implications**: If you have any incentive stock options (ISOs) in addition to RSUs, be careful about triggering Alternative Minimum Tax. The timing of your RSU sales relative to ISO exercises could impact your overall tax efficiency. **International tax considerations**: If you have any foreign accounts or investments, or if you're planning to move internationally, FATCA reporting requirements and foreign tax credits can add complexity to your post-IPO tax situation. The key is starting this planning now rather than waiting until after the IPO when your options become more limited. Having multiple strategies in your toolkit gives you flexibility to adapt based on the actual IPO price and market conditions.