Washington’s 9.9% capital gains excise tax and the newly enacted Millionaire Tax mean a single IPO liquidity event can push a founder or tech employee into combined state and federal rates above 50%. The planning window is before the lockup expires, not after.
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Without Pre-IPO Tax Planning
On a $5M IPO gain, you pay 23.8% in federal capital gains and NIIT ($1,190,000), plus Washington's tiered excise tax at 7% on the first $1M of taxable state gain and 9.9% on the remainder above the $278,000 standard deduction (approximately $455,000). No lockup-period strategy. No equity type optimization. No charitable offset. Every dollar of gain taxed in full in the year of the liquidity event.
With Capital Tax Pre-IPO Planning Service
Through ISO holding period optimization, RSU withholding strategy, charitable deduction layering, and post-lockup sale timing relative to Washington's 9.9% excise tax thresholds, the estimated combined federal and Washington state tax bill at the liquidity event falls to approximately $490,000 on the same $5M gain. That is over $1.1 million in additional after-tax proceeds retained by the founder or employee.
Let’s assume a gain of $5M
| Tax Layer | No Pre-IPO Planning | Capital Tax Pre-IPO Strategy |
|---|---|---|
| Total IPO Gain (RSU / ISO / Founder Equity) | $5,000,000 | $5,000,000 |
| Federal Capital Gains + NIIT (23.8%) | $1,190,000 | $285,600 (ISO optimization + deferred sale timing) |
| Washington Capital Gains Excise Tax | ~$455,000 | ~$204,400 (threshold management + charitable offset) |
| Total Combined Tax at Liquidity Event | $1,645,000 | ~$490,000 |
| After-Tax Proceeds You Retain | $3,355,000 | ~$4,510,000 |
Total Savings from Pre-IPO Planning
$1,155,000+
Savings = (Combined Tax Without Planning) – (Combined Tax With Pre-IPO Strategy). Based on a $5M liquidity event applying Washington’s 2025 standard deduction of $278,000 and standard federal long-term capital gains rates. Results depend on equity type, vesting schedule, holding periods, and income profile.
Washington’s tiered capital gains excise tax is already in effect for 2025 IPO liquidity events. The Millionaire Tax begins in 2028. For founders and employees approaching a liquidity event, these four scenarios demand pre-IPO analysis before shares can be sold.
Many Washington tech employees hold double-trigger RSUs that require both a time-based vesting condition and a liquidity event such as an IPO. When the company goes public, every RSU where the time-based condition has already been satisfied vests at once. This can produce hundreds of thousands of dollars in ordinary income in a single tax year, pushing total income well above the $1 million Millionaire Tax threshold. Washington's excise tax applies on top of that federal ordinary income treatment. Our team models your RSU vesting acceleration scenario and builds a withholding and sale timing strategy before the IPO filing date.
Washington's Millionaire Tax (SB 6346), effective January 1, 2028, imposes a 9.9% income tax on annual income exceeding $1 million. IPO events produce lumpy income: a founder or employee whose average annual compensation is $300,000 may recognize $4 million in a single year from RSU vesting and equity sale proceeds. That single-year spike triggers the Millionaire Tax on every dollar above the threshold. Our pre-IPO planning service models your income profile across the two years surrounding your liquidity event and identifies strategies to manage recognition timing relative to the 2028 effective date.
Incentive Stock Options can produce long-term capital gains treatment if held for at least one year after exercise and two years after grant. Exercise them too late and you miss the qualification window before the IPO lockup expires. Exercise them too early without modeling the Alternative Minimum Tax impact and you may owe significant AMT in the exercise year with no liquidity to cover it during the lockup period. Washington's excise tax applies to the eventual gain regardless of federal treatment. We build your ISO exercise schedule around your IPO timeline, Washington excise tax thresholds, and AMT exposure simultaneously.
Most IPOs include a lockup period of approximately 180 days during which employees and insiders cannot sell shares. RSUs that vest at or after the IPO are taxable as ordinary income at the share price on the vesting date, regardless of whether you can sell. If the stock price drops during the lockup, you may owe taxes calculated on a valuation higher than what you ultimately receive when shares become available. Washington's capital gains excise tax compounds this risk for sellers with large gains. Our team calculates your estimated tax liability at vesting and structures a liquidity plan to ensure you have the cash to cover it before the lockup expires.
Not every IPO creates the same tax outcome. The equity type you hold, the timing of your exercise or vesting, and the structure of your sale each determine your combined federal and Washington state exposure. Here is what our advisory team addresses before your liquidity event closes.
Washington IPO Tax Planning Service Criteria
5 / 5 Complete
Equity Type Classification and Washington Excise Tax Mapping
RSUs, ISOs, NQSOs, and founder shares are each taxed differently at the federal level, and Washington’s capital gains excise tax applies to the long-term capital gain portions at rates from 7% to 9.9%. We classify every equity holding you carry, map the Washington excise tax treatment for each, and calculate your total state exposure before the IPO filing date so there are no surprises at vesting.
ISO Exercise Schedule Optimized Against Lockup and AMT
We build an ISO exercise schedule timed around your IPO date, the one-year holding period required for capital gains treatment, and your Alternative Minimum Tax exposure in the exercise year. For Washington residents, we also layer in the excise tax threshold analysis so that your exercise strategy minimizes both federal AMT and state tax simultaneously rather than optimizing for one at the cost of the other.
RSU Withholding Strategy and Lockup Gap Liquidity Plan
RSU income at vesting is subject to mandatory federal withholding at 22% for the first $1 million and 37% above that, but high earners are routinely underwithheld. We calculate your actual tax liability at each vesting tranche, recommend supplemental withholding or estimated tax payments, and build a liquidity plan so you have cash to cover the tax bill during the lockup period when shares cannot be sold.
Millionaire Tax Income Recognition Timing Strategy
For founders and employees with large equity positions whose IPO is planned for 2027 or later, we model income recognition across the years surrounding the liquidity event and identify whether deferring or accelerating equity income relative to Washington’s Millionaire Tax effective date of January 1, 2028 produces a better after-tax result. This includes analysis of deferred compensation plans, installment sale structures, and charitable deduction strategies to manage income below the $1 million threshold where possible.
Charitable Deduction and Post-IPO Diversification Strategy
Washington’s Millionaire Tax allows a charitable deduction of up to $100,000 against state taxable income. For high earners already making significant charitable contributions, this produces a reduction in both federal and Washington state exposure. We integrate charitable giving, Donor Advised Fund contributions, and post-lockup diversification sales into a single coordinated plan that reduces your Washington excise tax exposure while supporting your personal financial goals.
| Planning Area | Washington-Specific Consideration |
| Capital Gains Excise Tax | 7% on gains up to $1M; 9.9% above $1M above $278,000 deduction (2025+) |
| Millionaire Tax (SB 6346) | 9.9% on income above $1M; effective January 1, 2028 |
| RSU Income at IPO | Ordinary income at vesting; Washington excise applies to subsequent capital gain |
| ISO Holding Period | One year post-exercise and two years post-grant required for capital gains treatment |
| Charitable Deduction (Millionaire Tax) | Up to $100,000 deductible against Washington taxable income under SB 6346 |
If your equity position meets these planning criteria, you are in a strong position to reduce your combined Washington and federal tax bill. When in doubt — verify before it’s too late.
Washington’s excise tax applies to long-term capital gains recognized by Washington-domiciled individuals, including gains from the sale of equity after an IPO. The rate is 7% on the first $1M of taxable gain above the $278,000 standard deduction and 9.9% on gains above that threshold. RSU income recognized at vesting is treated as ordinary income at the federal level, but subsequent appreciation sold as a long-term capital gain is subject to Washington’s excise tax. Our team maps the excise tax treatment for each equity type you hold before your IPO date.
The Millionaire Tax (SB 6346), effective January 1, 2028, imposes a 9.9% tax on annual income above $1 million, including income from RSU vesting and equity sales. It applies on top of the existing capital gains excise tax. For founders and employees with large equity positions, a single IPO year can push total income well above the $1 million threshold even if their normal compensation is far below it. Planning the timing of income recognition relative to the 2028 effective date is one of the most valuable steps our team takes in every Washington IPO engagement.
IPO lockup periods typically last 180 days, during which you cannot sell shares. RSUs that vest during or shortly after the IPO are taxable as ordinary income at the share price on the vesting date, even if the stock declines before you can sell. This creates a cash tax liability on shares you cannot liquidate. Washington’s excise tax adds a state-level exposure on top of the federal bill. We calculate your estimated liability at each vesting event and build a liquidity plan so you have cash available before the lockup expires.
Yes. Washington’s Millionaire Tax allows a charitable deduction of up to $100,000 against state taxable income. Contributions to a Donor Advised Fund in the year of your liquidity event can reduce both your federal adjusted gross income and your Washington excise tax base simultaneously. For Washington residents already making significant charitable contributions, the deduction produces a meaningful reduction in combined state and federal tax at IPO. We integrate charitable giving into your overall pre-IPO tax plan as part of our advisory service.
The answer depends on your current share price, IPO timeline, AMT exposure, and Washington excise tax threshold. Early exercise before the IPO can start the one-year capital gains holding clock and reduce the spread subject to AMT, but it requires liquidity to cover the exercise price and potential AMT. Late exercise risks missing the qualification window before the lockup expires. We model both scenarios for your specific grant details, IPO timeline, and Washington excise tax position and provide a recommended exercise schedule before you need to act.
Disclaimer: This is not tax advice, and it is recommended to consult a tax professional, as every tax situation is unique.
