The compression
A liquidity event compresses every decision you have deferred into a period of a few weeks, inside a blackout, while you are also doing the job that produced the event. It is the worst possible circumstance in which to make consequential and largely irreversible choices.
The planning that would have helped had to happen earlier. Not slightly earlier. Frequently years earlier, because several of the most valuable options are gated by holding periods or by structures that must predate the transaction to be respected.
What closes, and when
| Lever | Realistically closes |
|---|---|
| Qualified small business stock holding period | Three to five years before sale, depending on regime. Not adjustable. |
| Transfers into trust at a low valuation | Well before a transaction is in view. Value it afterwards and the transfer is worth a fraction as much. |
| Staged option exercises using the AMT corridor | Needs several tax years. Cannot be compressed into one. |
| Changing residency | Requires real facts over real time. A move contemporaneous with a sale invites a residency audit. |
| Charitable structures funded with appreciated stock | Before a binding agreement exists, or the anticipatory assignment doctrine may apply. |
| Establishing a trading plan | Must be adopted when you are not in possession of material non-public information. |
What is still available late
It is worth being honest that arriving late is not the same as arriving with nothing.
- Withholding and estimated payments can still be corrected for the year of the event.
- Recognition can sometimes still be sequenced across the boundary between two tax years.
- Offsetting positions can be put in place in the year the income lands, subject to the loss limitation rules.
- Post-transaction structure can still be built for what remains, which is often the larger long-run question.
What is not recoverable is anything gated by a holding period or by a valuation that has already moved. Those are simply gone, and an adviser who implies otherwise is selling you something.
Where this lands
- 01Treat any event you consider even plausible within three years as a planning trigger today.
- 02Establish which levers in your situation are holding-period gated. Those set the true start date for everything else.
- 03Get the structural work done while nothing is pending. Structures built in a quiet year are ordinary; the same structures built against a live transaction are examined differently.
- 04Assume you will have no attention during the event itself, and design accordingly. The plan has to be able to run without you improvising.
General information only. This article describes law and practice as we understand them at the time of writing. It is not tax, legal, accounting, or investment advice, it does not consider your circumstances, and it does not create an advisor-client or attorney-client relationship. Odyssey Strategic Advisors LLC is not a law firm and is not a CPA firm. Confirm any position with your own tax professional before acting on it. See our disclosures.