Founder liquidity planning

Founder Liquidity Calculator

Estimate the after-tax proceeds from a secondary sale, tender offer, or acquisition exit. Enter your situation below — the calculator applies 2026 federal LTCG rates, the 3.8% NIIT, the Section 1202 QSBS exclusion (OBBBA $15M cap), and California's QSBS non-conformity. Results are estimates; your advisor will model the full picture.

How this calculator works

For any founder stock sale, the after-tax outcome depends on four variables: the capital gains tax bracket, the NIIT, QSBS exclusion eligibility, and state taxes. Here is how each is modeled.

2026 federal LTCG brackets

Long-term capital gains (stock held more than one year) are taxed at 0%, 15%, or 20% depending on total taxable income. The LTCG bracket thresholds for 2026, per IRS Rev. Proc. 2025-67:¹

Capital gains stack on top of ordinary income, so a founder with $300K of W-2 income who also has $5M of gain will find almost all the gain taxed at 20%.

Net Investment Income Tax (NIIT)

The 3.8% NIIT applies to net investment income — which includes capital gains — when modified AGI exceeds $200,000 (single) or $250,000 (MFJ).² These thresholds are not adjusted for inflation; they have been $200K / $250K since 2013. For most founders with meaningful liquidity, NIIT adds 3.8% on top of the LTCG rate.

QSBS exclusion (Section 1202 / OBBBA)

Under IRC §1202, qualified small business stock held for the required period excludes a portion of the gain from federal tax. The One Big Beautiful Bill Act (July 2025) updated the rules:³

• 3-year holding period: 50% of gain excluded
• 4-year holding period: 75% of gain excluded
• 5+ years: 100% of gain excluded
• Maximum excluded gain: $15M per taxpayer per issuer (raised from $10M by OBBBA)

For the 100% exclusion case, a founder with $15M or less of QSBS gain owes $0 in federal tax on that gain. For gains above $15M, the excess is taxed at standard LTCG rates.

Note: the 50% exclusion triggers an AMT preference item for the excluded portion. This calculator does not model AMT — if you are in the 50% exclusion scenario, have your advisor run the AMT calculation as well.

California's QSBS non-conformity

California does not conform to IRC §1202.⁴ A California resident who qualifies for full federal QSBS exclusion still owes California income tax on the entire capital gain. At the 13.3% top rate (which applies to taxable income above $1M for single filers), this can represent a substantial unexpected tax bill. Moving domicile out of California before a liquidity event is a common planning discussion — but it requires careful attention to timing, domicile standards, and California's aggressive audit of departing residents.

Why effective rates vary so much for founders

Two founders with identical gross proceeds can have very different net outcomes:

• QSBS status and holding period. A 5-year QSBS holder with $10M of gain in Texas owes $0 in tax. A non-QSBS founder in California at the top rate (20% + 3.8% + 13.3%) faces a combined marginal rate of 37.1% on their gain.
• Stacking with other income. A founder with $500K of W-2 or vesting RSU income in the same year has already crossed every LTCG threshold. Every dollar of founder gain lands at 20% + 3.8% — plus state.
• Prior QSBS exclusion use. If a founder has used $8M of QSBS exclusion in a prior exit from the same company, only $7M of cap remains for the next event.
• State of domicile at close. Texas, Florida, Nevada, and Washington have no state income tax. California and New York tax LTCG as ordinary income at top marginal rates.

Planning considerations worth discussing with an advisor

• Tax year sequencing. If the sale date is flexible (a secondary, not a company-forced event), timing it in a low-income year can shift more gain to the 15% bracket and reduce NIIT exposure.
• Spousal QSBS stacking. Each spouse can hold separate QSBS from the same issuer with an independent $15M cap — but the stock must be properly split at issuance, not transferred later. This requires planning at the formation stage.
• Trust QSBS stacking. Irrevocable non-grantor trusts can hold QSBS with separate $15M caps, multiplying the available exclusion. Rules around basis allocation and trust control are complex — requires estate and tax counsel working together.
• Charitable giving at exit. Contributing appreciated founder stock to a donor-advised fund before a sale avoids capital gains tax on the donated shares entirely and generates a charitable deduction. Requires unrealized shares, not cash proceeds.
• Installment sale. Spreading acquisition proceeds across multiple tax years can reduce the peak-year bracket stacking problem — but requires buyer agreement and careful structuring for equity deals.