A liquidity event can turn years of paper value into real, spendable wealth almost overnight, whether through a company going public, an acquisition, an inheritance or an unexpected payout. The money is life-changing, and so is the tax bill that comes with it. The single biggest factor in how much you keep is when you start planning, and the most valuable moves are usually the ones made before the cash ever lands.
At Johanson & Yau we spend much of our time with founders and families in exactly that window. Here's what tends to matter most.
What Is a Liquidity Event?
A liquidity event is any moment when an asset you couldn't easily spend becomes cash or freely tradable wealth. Common examples include:
- For founders and employees: an initial public offering (IPO), an acquisition or a sale of private shares before the company goes public
- For families: an inheritance or a large lifetime gift
- For everyone else: a business sale, a legal settlement or another sizable windfall
The common thread is that something you owned on paper turns into money you can use, bringing a tax bill and a new set of decisions with it.
Why Does Timing Matter So Much?
Because most of the highest-value strategies disappear once the money is liquid. Acting while values are still low and your options are still open is what protects the most wealth. Before an event, this is often the time to:
- Check whether your shares qualify for a powerful startup-stock tax break, locked in years earlier when the stock is first issued
- Give away shares that are likely to climb in value before they spike
- Fund trusts while valuations are still modest
- Settle your state of residence well ahead of a sale
None of these can be reverse engineered after the fact.
What Should Founders Watch before an IPO or Acquisition?
Three things tend to create the biggest surprises:
- Taxes on your equity. Exercising certain stock options can trigger a separate tax called the alternative minimum tax (AMT), sometimes on gains you haven't actually cashed in. Restricted stock units, the shares many companies grant employees, are taxed as regular income as they vest, and the amount automatically withheld is often well short of what a high earner truly owes.
- Selling restrictions. After an IPO, you may be locked out of selling for months while the price moves outside your control.
- Too much in one stock. Walking into liquidity with most of your net worth tied to a single company carries risk that has nothing to do with how good that company is. A plan to gradually spread that wealth into other investments, paced around your selling restrictions and your tax picture, is one of the most protective moves available.
What Changes When the Wealth Comes from Family?
Inheritance arrives alongside grief, and a little structure protects both the money and the relationships around it. The essentials:
- The estate tax exemption is now $15 million per person, or $30 million for a married couple, and it was made permanent in 2025. For many families that removes federal estate tax from the picture, though some states still charge their own.
- Inherited assets are generally reset to their value on the date of death, a rule known as a step-up in basis. That can erase decades of built-up gains if you sell soon after.
- If you inherit a retirement account from someone other than a spouse, you usually have to empty it within 10 years, and how you time those withdrawals can swing the tax bill quite a bit.
The families who navigate this best talk openly and bring the next generation into the conversation early.
What Are the Most Common and Costly Mistakes?
- Waiting until after the event, when so many tax strategies depend on acting beforehand
- Letting a single concentrated position ride out of loyalty or optimism
- Underestimating the tax bill, especially the under-withholding on vested shares and the alternative minimum tax on options
- Inflating your lifestyle before any structure is in place, which anchors permanent spending to a one-time event
- Going silent with family during an inheritance
What Should You Do in the First 90 Days?
A calm, deliberate sequence beats a flurry of activity:
- Assemble your team so your CPA, financial advisor and estate attorney are talking to one another.
- Park the proceeds somewhere safe and easy to access while you think.
- Model the full tax picture so you know what is genuinely yours to keep.
- Hold off on big, irreversible decisions like the house or dramatic gifts.
- Put the wealth to work in a way that matches the life you want.
There's no prize for speed here, and a great deal of value in patience.
How Johanson & Yau Can Help
A liquidity event touches assurance, tax and wealth all at once, which is why those three disciplines sit under one roof at Johanson & Yau. We know the tech sector well, from equity compensation and startup-stock tax rules to life after an IPO, and we treat the people we work with like family. If a liquidity event is on your horizon, whether months away or already unfolding, we'd be glad to talk it through. The earlier we start, the more we can do.
Source: irs.gov