Equity & Cost Basis
Before you can strategize, you need a complete picture of what you own. This is the foundation of every IPO tax plan.
Catalog All Equity Grants
Consolidate every ISO (Incentive Stock Option), NSO (Non-Qualified Stock Option), and RSU (Restricted Stock Unit) into a single schedule. Include grant date, vesting schedule, number of shares, and current status. Many xAI and SpaceX employees are surprised to find grants they had forgotten about.
Verify Strike Prices & Cost Basis
Confirm the exercise price for every grant. Your “spread” — the difference between your strike price and the fair market value at exercise — directly determines your tax bill. A $0.01 strike price on 100,000 shares creates a very different tax outcome than a $10.00 strike.
Locate All 83(b) Election Documentation
If you early-exercised options, you should have IRS-certified mail receipts proving your 83(b) election was filed within 30 days of exercise. Missing this documentation is one of the top causes of preventable IPO tax overpayment. Locate these records NOW — before the IPO filing.
Qualified Small Business Stock (QSBS) — Up to $10M Tax-Free
Section 1202 QSBS exclusion may be the single most valuable tax break available to pre-IPO employees. Many qualify without realizing it.
Confirm Section 1202 QSBS Eligibility
Did your company have less than $50M in gross assets at the time you received your shares? Was it a domestic C-corporation? Were your shares issued after August 10, 1993? If yes to all three, you may qualify for a 100% federal capital gains exclusion on up to $10M in gains.
Track Your 5-Year Holding Clock
QSBS requires a 5-year holding period from the date of share acquisition. Verify your exact “start date.” If you are approaching the 5-year mark at xAI, SpaceX, or your company, the tax-free treatment could be worth millions — and a premature sale would forfeit the entire benefit.
Analyze Any Merger or Acquisition Impact
If your company was restructured, merged, or recapitalized before the IPO, your QSBS status may have been impacted. Check whether your QSBS “rolled over” into new shares or was terminated by the transaction. This is especially relevant for companies that have undergone multiple funding rounds.
QSBS Example: A private company employee holding $2M in qualifying stock could potentially exclude the entire amount from federal tax — saving up to 50% in taxes.
State tax treatment varies. California, for example, does not conform to the federal QSBS exclusion. capitaltax.com can run a full QSBS analysis for your specific situation.
ISO Exercise & AMT Strategy
Incentive Stock Options receive preferential tax treatment — but only if you navigate the Alternative Minimum Tax (AMT) correctly. Mistakes here can cost hundreds of thousands of dollars.
Calculate Your Full AMT Exposure
For ISOs, the “spread” at exercise (FMV minus strike price) is an AMT preference item — meaning it can trigger significant AMT liability even though you haven’t sold the shares and received no cash. Calculate your AMT crossover point to determine the maximum ISOs you can exercise in a given year without owing additional tax.
Assess Liquidity & Determine Exercise Strategy
Do you have the cash to cover (1) the exercise cost itself and (2) the potential AMT triggered by exercising? If not, a “sell-to-cover” strategy during the IPO may be necessary — but this forfeits long-term capital gains treatment. Plan this trade-off carefully with a tax advisor before the IPO window opens.
Plan for the Lock-Up Period Tax Tra
IPO lock-up periods typically last 180 days. If you exercise ISOs before or at IPO, you may owe AMT on the spread — but be legally barred from selling shares to pay that tax bill. Model your tax liability for the year of exercise and ensure you have a plan to pay the IRS independently of any share sales
Post-IPO Wealth Strategy
The IPO is not the finish line — it’s the starting gun for a new set of tax obligations. Preparation now prevents costly surprises later.Set Up Quarterly Estimated Tax Payments
The IRS requires quarterly estimated payments when you expect to owe $1,000 or more. A large equity liquidity event — your “windfall year” — will almost certainly trigger this requirement. Failing to make adequate estimates results in underpayment penalties on top of your regular tax bill. Project your income early and schedule payments in advance.
Conduct a Multi-State Tax Apportionment Analysis
If you worked in multiple states while your equity was vesting — for example, working remotely from Texas while your options vested at a California-headquartered company — both states may claim a portion of the gain. California is particularly aggressive in asserting taxation rights over equity compensation. This analysis can reveal unexpected six-figure state tax liabilities.
Explore Pre-IPO Gift & Estate Planning Strategies
Consider transferring shares into a Grantor Retained Annuity Trust (GRAT) or a Family Limited Partnership (FLP) while the valuation is still at a pre-IPO discount. Gifting pre-IPO shares to a donor-advised fund or directly to family members can also shift future appreciation out of your taxable estate — a strategy that becomes far less powerful once the IPO price is set.
Pro Tip for SpaceX & xAI Employees: Secondary market transactions (selling pre-IPO shares on platforms like Forge or EquityZen) have their own complex tax triggers.
These sales often generate immediate ordinary income or short-term capital gains and may affect your QSBS clock. Get a tax review before executing any secondary sale.
Ready to protect your IPO windfall? Visit capitaltax.com to schedule your Pre-IPO Tax Strategy Session.
This checklist is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional for guidance specific to your situation. capitaltax.com