I own a chunk of stock in a company that plans to IPO in the next year or two. The company has significant revenue and I am confident they will have a favorable exit in the future. The stock trades on the secondary market and at current pricing my chunk is worth ~$1M. My basis is < $100K.
Whenever the IPO happens, I plan to liquidate the majority and diversify it into index funds. However, this will push me into LTCG brackets higher than 15%.
2024 was an abnormally low income year for me due to an unpaid sabbatical. As a result, I've got significant space below the NIIT threshold. So I'd like to tax gain harvest some of this stock this year.
If they were publicly traded, that'd be easy to sell and immediately re-buy. But since it's a privately traded stock, how do I do this?
Can I sell a chunk of the stock to a friend, then immediately re-buy the stock from them?
I would write up two contracts as two separate transactions with this person. Is there anything else I'm required to do in order to be a legal tax gain harvest in the eyes of the IRS?
Can it be family or does it need to be a non-relative?
I considered using the brokers that facilitate secondary market deals but they take a 10% cut. Additionally I'm bullish on the stock at the current price and would prefer not to permanently sell until the price is closer to the IPO expected price. I am not bothered by the risk that they may not IPO. So to sell, and then re-buy via secondary market is effectively a 20% haircut.
The only other wrinkle I can think of is that normally in a secondary market sale, the company gets notified and has the option to exercise their ROFR. And if they don't exercise their ROFR (they never do as far as I have heard from past employees and brokers) then they normally update the new owner on their books. The company's legal team is also not always responsive to private party sales that don't go through brokers... I've heard of people trying to sell and never getting a response from the company legal team. Given that I plan to sell and immediately re-buy, it seems like a pain in the butt for the company to update their books, only to immediately change it back... So I'm wondering if I could structure it as something like a forward contract... My understanding is this would qualify for the LTCG treatment, but skip the requirement to notify the company.
Again, I basically want to do only what's necessary in order to incur the tax hit now in order to raise my basis.
Whenever the IPO happens, I plan to liquidate the majority and diversify it into index funds. However, this will push me into LTCG brackets higher than 15%.
2024 was an abnormally low income year for me due to an unpaid sabbatical. As a result, I've got significant space below the NIIT threshold. So I'd like to tax gain harvest some of this stock this year.
If they were publicly traded, that'd be easy to sell and immediately re-buy. But since it's a privately traded stock, how do I do this?
Can I sell a chunk of the stock to a friend, then immediately re-buy the stock from them?
I would write up two contracts as two separate transactions with this person. Is there anything else I'm required to do in order to be a legal tax gain harvest in the eyes of the IRS?
Can it be family or does it need to be a non-relative?
I considered using the brokers that facilitate secondary market deals but they take a 10% cut. Additionally I'm bullish on the stock at the current price and would prefer not to permanently sell until the price is closer to the IPO expected price. I am not bothered by the risk that they may not IPO. So to sell, and then re-buy via secondary market is effectively a 20% haircut.
The only other wrinkle I can think of is that normally in a secondary market sale, the company gets notified and has the option to exercise their ROFR. And if they don't exercise their ROFR (they never do as far as I have heard from past employees and brokers) then they normally update the new owner on their books. The company's legal team is also not always responsive to private party sales that don't go through brokers... I've heard of people trying to sell and never getting a response from the company legal team. Given that I plan to sell and immediately re-buy, it seems like a pain in the butt for the company to update their books, only to immediately change it back... So I'm wondering if I could structure it as something like a forward contract... My understanding is this would qualify for the LTCG treatment, but skip the requirement to notify the company.
Again, I basically want to do only what's necessary in order to incur the tax hit now in order to raise my basis.
Statistics: Posted by nerdymarketer — Tue Nov 12, 2024 12:05 am — Replies 2 — Views 145