Tax-Efficient Liquidity Events: Pre-Sale Planning 12-24 Months Ahead

A business sale or major liquidity event can be life-changing. However, it can also create an unnecessary tax burden without the right preparation. The most powerful tax strategies aren’t executed at the negotiating table. They’re put in place 12–24 months before a sale, when founders still have flexibility to restructure, reposition, and optimize the terms of their exit.

Here’s how early planning can help you keep more of the wealth you’ve spent years building.

Start Early to Maximize Your Options

The time between considering an exit and signing a letter of intent is the most valuable window for tax strategy. Once a buyer is involved, your ability to restructure or transfer ownership becomes limited by legal and valuation constraints.

Planning 12–24 months out allows you to:

• Restructure your entity if needed
• Transfer shares to trusts or family members
• Optimize basis and ownership allocation
• Implement equity or compensation strategies
• Address state residency and sourcing issues

The earlier you begin, the more strategies remain on the table.

Explore the Power of QSBS Before It’s Too Late

For C-corporation founders, Qualified Small Business Stock (QSBS) can provide up to 100% exclusion of capital gains—a benefit that often exceeds seven figures.

But QSBS eligibility isn’t something you can fix at the last minute. Early planning helps ensure:

• The entity meets gross-asset and active-business tests
• The stock has been held for the five-year minimum
• Any reorganizations or financings maintain QSBS qualification
• Multiple “stacking and packing” opportunities are explored legally and appropriately

If QSBS applies to your business, it becomes one of the most powerful tools in exit planning.

Consider Pre-Sale Gifting and Trust Transfers

Gifting shares before they appreciate further can shift future gain out of your estate and onto beneficiaries or trusts. This needs to happen before negotiations begin to avoid IRS scrutiny over valuation.

Effective structures may include:

• Spousal Lifetime Access Trusts (SLATs)
• Dynasty or multigenerational trusts
• Charitable Remainder Trusts (CRTs) for income and tax deferral
• Grantor trusts for continued tax control

These tools can create long-term family wealth, but the timing must be intentional.

Evaluate State Residency and Sourcing Rules

If you’re considering a move to a lower-tax state, timing is critical. Many states aggressively audit pre-sale residency changes, especially when significant gains are involved.

A robust plan includes:

• Establishing clear domicile evidence
• Evaluating sourcing rules for equity compensation
• Understanding community-property implications
• Reviewing how earn-outs and installment payments will be taxed

State tax treatment can change your net proceeds more than expected.

Prepare Your Financial and Corporate House

Buyers expect clean books, clear contracts and streamlined ownership records. Early preparation reduces deal friction and creates room for favorable terms.

This includes:

• Cleaning up your cap table
• Reviewing shareholder agreements
• Addressing contingent liabilities
• Validating financials and forecasting
• Ensuring documentation supports any future tax positions

Tax efficiency and deal readiness go hand in hand.

Early Planning Protects Your Outcome

A liquidity event is often the biggest financial milestone in a founder’s life. Starting 12–24 months ahead allows you to reduce taxes, improve negotiating leverage and align the sale with long-term wealth goals.

Illumination Wealth helps founders design tax-smart exit strategies that preserve more of the value they’ve created—before the deal process limits their options. Contact us today to get started with your exit plan.