Tender offers: how to decide, and how the sale is taxed.
A tender offer lets you sell private company shares before an IPO, usually on a deadline of two to four weeks. It forces three decisions: whether to sell, how much, and how to handle the tax. This guide covers the timeline, the mechanics, and the mistakes that cost the most.
What happens, and when.
Almost every offer follows the same shape. The decision period is shorter than people expect.
| Stage | What it means for you |
|---|---|
| Announcement | The company or a buyer offers to purchase shares from existing holders. Terms arrive as a document set: the offer price, who is eligible, caps on how much you may sell, and the deadline. |
| The window | Usually two to four weeks. This is the entire decision period. It is also when you need your grant history and holding periods assembled, which is the step most people have not done. |
| Election deadline | You submit how many shares you are selling. In most offers this is final. Missing it is the same as declining. |
| Settlement | Proceeds are paid, often weeks later. Withholding may or may not be taken depending on the share type and whether an exercise was involved. |
| The following April | The tax consequence lands. If nothing was set aside, this is where the plan fails, because the money has usually been spent or reinvested by then. |
How the sale is taxed.
Holding period decides most of it
Shares held more than one year generally qualify for long-term capital gains treatment, topping out at 20% federally. Shares held a year or less are taxed as ordinary income, which for a Bay Area household frequently means the top bracket. For shares acquired by exercising options, the clock starts at exercise, not at grant.
The 3.8% surtax on top
Above $250,000 of modified adjusted gross income for joint filers, or $200,000 for single filers, the net investment income tax adds 3.8%. Those thresholds are statutory and are not adjusted for inflation, so they catch more households every year.
California taxes all of it as ordinary income
California makes no distinction between long-term and short-term gains. The entire gain is ordinary income at rates reaching 13.3%. For most people reading this, California is the second largest line on the bill and the one most often left out of the mental math.
If you have to exercise first
Exercising incentive stock options to participate can trigger alternative minimum tax in the same year. The 2026 exemption is $140,200 for joint filers, and above $244,500 of taxable excess the AMT rate moves from 26% to 28%. Whether to exercise and sell in the same year, or split them, is a real modeling question rather than a rule of thumb.
QSBS, and the California catch.
Section 1202 can exclude a large amount of gain from federal tax. As of 2025 there are two sets of rules, split by when you acquired the stock.
| Holding period | Acquired after July 4, 2025 | Acquired on or before |
|---|---|---|
| 3 years | 50% excluded | No exclusion |
| 4 years | 75% excluded | No exclusion |
| 5 years | 100% excluded | 100% excluded |
| Per-issuer cap | $15,000,000 | $10,000,000 |
| Issuer gross assets ceiling | $75,000,000 | $50,000,000 |
California does not conform to any of it
This is the part national guidance leaves out. California does not follow Section 1202. The Franchise Tax Board requires the entire gain to be reported for California purposes, so a resident excluding $15,000,000 from federal tax still owes California tax on the full amount at rates reaching 13.3%. California repealed its own version of the exclusion in 2013.
In practice that means a gain which is federally tax-free can still carry a seven-figure California bill. It does not make QSBS worthless, it makes the planning around residency, timing, and trusts worth doing properly rather than assuming the federal answer is the whole answer.
What goes wrong.
- Assuming the holding period runs from your grant dateFor options, the capital gains clock starts when you exercise, not when the option was granted. People who have been at a company for six years routinely discover their shares are short-term because they exercised last quarter. That single fact can change the tax on the sale by more than ten percentage points.
- Treating it as all or nothingThe decision is how much, not whether. Selling a portion to remove existential risk while keeping exposure to the outcome is available in almost every offer, and it is usually the right shape of answer. Framing it as a binary is how people end up regretting either direction.
- Forgetting that California does not follow the federal rulesEvery favorable federal treatment on this page has a California asterisk. California taxes capital gains as ordinary income at rates reaching 13.3%, and it does not conform to the qualified small business stock exclusion at all. A sale that looks efficient federally can still carry a substantial California bill.
- Exercising to participate without modeling the AMT firstIf you need to exercise incentive stock options in order to sell into the offer, the exercise itself can trigger alternative minimum tax in the same year. The 2026 AMT exemption is $140,200 for joint filers and the rate steps from 26% to 28% above $244,500 of taxable excess. Doing the exercise and the sale in the same year sometimes avoids this and sometimes makes it worse. It depends on your other income.
- Assuming QSBS applies, or assuming it does notQualified small business stock is worth real money when it applies and is frequently misunderstood in both directions. It turns on the company's structure and asset size, how you acquired the shares, and when. It is worth an actual answer rather than a guess, because the difference is often seven figures.
Figures cited are 2026 amounts. This is educational information, not individualized tax or investment advice. Consult your own tax professional before acting.
When this is worth outside input.
Not every tender offer needs an advisor. If the amount is small relative to your net worth and your holding periods are unambiguous, you can reasonably work it out yourself.
It is worth getting help when the position is large enough that the outcome changes your life, when an exercise is required to participate, when you are unsure whether the shares are long-term, when QSBS might apply, or when you have moved states or are considering it. Those are the situations where the gap between a good decision and an average one is measured in years of savings.
Austin Creek Capital works with employees of private, venture-backed companies on exactly these decisions. We are fee-only and fiduciary, we do not sell products, and we do not take a percentage of your proceeds.
Common questions.
Should I sell in the tender offer or hold for the IPO?
There is no general answer, and anyone offering one without seeing your situation is guessing. The honest framing is: how much of your net worth is in this one company, what would change in your life if it went to zero, and what would you regret more. Most people who work through it land on selling some, not all. What we can do is quantify each path after tax so the decision is made on numbers rather than on how the last all-hands felt.
How is the money taxed?
It depends on what you sell and how long you have held it. Shares held more than a year generally qualify for long-term capital gains rates, topping out at 20% federally. Shares held a year or less are taxed as ordinary income. Above $250,000 of modified AGI for joint filers, $200,000 for single filers, the 3.8% net investment income tax also applies. California then taxes the entire gain as ordinary income.
Does my stock qualify for the QSBS exclusion?
It might, and it is worth checking. The company must be a C corporation that was under the gross assets ceiling when the stock was issued, you must have acquired the shares at original issue rather than buying them from someone else, and holding period rules apply. Note that California does not conform, so even a fully excluded federal gain is fully taxable by California.
The deadline is in two weeks. Is that too late to get advice?
No, provided you can produce your grant documents, exercise history, and an estimate of your other income for the year. The analysis is bounded by the offer's terms. What two weeks cannot do is undo a decision from a prior year, such as an exercise that started a holding period later than you assumed.
Will I owe tax even if I do not sell?
Generally not from the tender offer itself. But if you exercise incentive stock options and hold them, the exercise can create alternative minimum tax exposure with no cash to pay it. That is the scenario where people are most often caught out, because nothing was sold and no money arrived.
What should I do with the proceeds?
The first questions are how much to set aside for the tax bill and what the money is actually for. Diversification, a home, a runway to leave the company, or nothing in particular are all legitimate answers, and they lead to different portfolios. Deciding after the money arrives, without a plan, is how a concentrated position becomes an uninvested cash position for two years.
Keep reading.
- QSBS, and what California does with it
- Financial planning for pre-IPO employees
- Navigating pre-IPO tender offers, a tax strategy guide
- ISO vs NSO exercise: which is actually better?
- You have stock options. Do you know which kind?
- IPO lockup expiration: the tax already happened
- The 90-day action plan after a liquidity event
- Estimate RSU taxes and net proceeds
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