302 | Pre-IPO? How to Reduce Taxes Before a Liquidity Event

[00:00:44] Hilary Hendershott: For more than two decades, I’ve worked with founders, executives, and early employees who hold significant equity in private or pre-IPO companies. We focus on the decisions that quietly shape your long-term financial outcome, especially around taxes, liquidity events, and how to turn sudden wealth into lasting freedom, not future regret.

[00:01:06] If you work at a startup or hold private company equity, there’s a moment that almost everyone looks forward to. It’s the IPO or the acquisition. It’s the day or days your equity finally becomes liquid. And while that moment can be incredibly exciting, it’s also where I see some of the biggest and most expensive financial mistakes happen because liquidity doesn’t just change your balance sheet, it changes your tax exposure overnight.

[00:01:35] Don’t be surprised if the various tax authorities want to claim 30% or more of your new wealth. That’s a tough and expensive pill to swallow, and most people don’t realize how limited their options can become after their liquidity event has already happened. So, today, I want to walk you through how thoughtful, tax-aware planning before a liquidity event, including the strategic use of a tax-aware long-short investment strategy, can dramatically change how much of your wealth you get to keep, how flexible your choices are, and the quality of life your new wealth can support for you over the long term.

[00:02:13] Here’s the trap I see over and over again. You spend years building value inside a company. Your equity grows quietly in the background, and because it isn’t liquid yet, it doesn’t feel real. You know planning needs to get done, and decisions need to be made, but tomorrow is just as good as today for that, so planning gets postponed.

[00:02:33] Then, when the exit arrives, your equity turns into taxable income, and your situation mushrooms in complexity. At that point, most people are asking the wrong question, and unfortunately, it’s too late to ask the right one. They ask me, “How do I reduce taxes on this now?” By then, the IRS has already done the math and is coming with its handout.

[00:02:55] The reality is this: taxes are easiest to manage before the liquidity event, not after. Once gains are realized, your planning window narrows dramatically, your choices shrink, and the tax bill becomes something you react to instead of something you manage strategically and design around. Your company’s exit is a life-altering moment that, unfortunately, has just as big an impact on your tax bill.

[00:03:21] Before your exit arrives, however, you have two things working to your advantage. You have time and flexibility. Before your gains trigger a big tax bill, you can plan around future gains instead of scrambling to offset past ones. This is where tax-aware investment strategies are especially powerful. These strategies are designed to manage when and how much tax you owe across your entire financial ecosystem and set you up to navigate your exit efficiently.

[00:03:49] That includes understanding how your equity fits into your net worth, financial goals, and overall risk exposure, planning ways to manage and spend your new wealth without giving a third of it to the taxman and intentionally creating ways to reduce future tax drag without disrupting your long-term investment strategy, sacrificing market returns, or taking unnecessary risk.

[00:04:13] This isn’t about trying to predict markets or time a sale or an IPO perfectly. It’s about being structurally prepared, no matter how or when liquidity arrives. This is where tax-aware long-short investing enters the conversation. And to be clear, this isn’t about adding complexity for its own sake or replacing a long-term investment plan. But for investors with meaningful taxable assets before a liquidity event, it can be a powerful planning tool.

[00:04:42] Here’s the simple way to think about it. Tax-aware long-short strategies are designed to intentionally generate tax losses that are fully offset by deferred investment gains. These strategies give you losses for your taxes while you continue to book gains in your brokerage account. In other words, you’re not trying to win on one side of the portfolio or the other.

[00:05:05] You’re using the natural movement of markets, both up and down, to harvest losses that the tax code allows you to use today while the gains sail along unrealized and untaxed. When liquidity eventually happens, those accumulated losses soften the impact of capital gains, sometimes dramatically, because your taxes are based on your overall net portfolio gains and losses.

[00:05:33] If you add 2 million in harvested losses to your $3 million of realized gain, you’ve cut your tax bill by more than two-thirds. That’s what people mean when they talk about reducing after-tax drag rather than chasing pre-tax performance. Startup equity creates a unique kind of risk. It’s often highly concentrated, illiquid for long periods, and emotionally tied to your career and identity.

[00:05:58] That makes it easy to delay planning. But concentration risk plus a large, sudden tax bill can limit your options for decades, even after a successful exit. When planning is done well, liquidity becomes a moment of expansion. You get flexibility, you get freedom, you get to diversify, invest, give, and spend intentionally.

[00:06:21] Without planning, exits can feel surprisingly restrictive. You may still be wealthy, but less free than you expected. Tax-aware strategies don’t exist to make things complicated. They exist to give you time and space to decide what you want to do with your hard-earned wealth without an automatic seven-figure tax bill.

[00:06:41] I want to emphasize something important. This isn’t about a single strategy or a single account. It is about working with a team that understands equity compensation, concentration risk, long-term tax planning, effective tax-aware investing, and how investment decisions interact with real life. The goal isn’t to avoid taxes at all costs.

[00:07:06] The goal is to pay taxes intentionally at the right time in the right amounts without sacrificing growth or flexibility. That’s what thoughtful planning looks like. Clarity creates confidence, and confident decisions tend to age well. If you’re holding private company equity or expecting a liquidity event in the future, this is a conversation worth having sooner rather than [00:07:30] later, not because you need to take action today, but because the earlier you understand your options, the more control you have.

[00:07:37] If this topic resonates, we share education on tax-aware planning, investment strategy, and how to align your money with the life you’re building. And if you want to explore whether this kind of planning makes sense for your situation, you can learn more about how to start that complimentary conversation at HendershottWealth.com/contact.

[00:07:59] No pressure, just clarity, so your money can support your life, not complicate it.