Why Could Your Company’s IPO Put Your Finances at Risk?

True Root Financial is a financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.

Your company’s IPO is finally happening. Overnight, your net worth on paper might look massive. But if you’re sitting on RSUs, ISOs, or NSOs in the Bay Area, you could be heading for a financial disaster instead of freedom.

If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.

This guide breaks down how to protect your wealth and keep your dream from turning into a financial wreck.

Key Takeaways

RSUs, ISOs, and NSOs have different tax treatments, know which you hold
AMT can hit ISO holders hard; model before you exercise
Lock-up periods can trap you with taxes and no liquidity
California taxation follows you farther than you think.

RSUs vs ISOs vs NSOs

RSUs (Restricted Stock Units): You don’t own them until they vest. When they vest, they’re taxed as ordinary income at the fair market value.

NSOs (Non-Qualified Stock Options): You pay ordinary income tax on the “spread” (FMV-strike) at exercise. No AMT applies.

ISOs (Incentive Stock Options): If held long enough, ISOs can qualify for long-term capital gains, but they can also trigger AMT (Alternative Minimum Tax) when exercised.

Why AMT is a Silent Killer?

Exercising ISOs before or during an IPO can trigger AMT on paper gains, even before you sell your stock
That “bargain element” (FMV minus strike price) is taxable under AMT, creating huge tax bills on stock you haven’t even sold
In the Bay Area, it’s common for tech employees to face six-figure AMT liabilities because their company’s pre-IPO valuation skyrocketed.

How are RSUs taxed in California?

At Vesting

RSUs vesting at IPO trigger ordinary income tax at both the federal and California levels.

California’s high top rate (~13.3%) and payroll withholding often aren’t enough to cover the full tax bill. Many employees end up owing tens of thousands in April.

At Sale

Federal capital gains apply if you hold after vesting:

Less than one year = short-term (taxed as ordinary income)
More than one year = long-term capital gains

California doesn’t care that all gains are taxed as ordinary income.

What is a Lock-Up? Why You Might Be Trapped at the Worst Time?

After IPO, insiders are often restricted from selling shares for 90–180 days.

Imagine this: Your RSUs vest on IPO day, creating a massive taxable event, but you can’t sell any shares for months.

If the stock drops before you can sell, your paper wealth and liquidity both vanish, yet your tax bill stays. This is what happened to early employees at Lyft and Robinhood. The stock plunged post-IPO, but the IRS didn’t care.

How to Avoid the AMT Trap on ISOs?

Manage Exercises Carefully
Exercise early and gradually: Spread exercises over multiple years to manage AMT exposure.
Track your FMV vs strike price: Smaller spreads = smaller AMT.
Avoid bunching exercises in high-income years, especially the same year as your IPO.

Know Your ISO Holding Rules:

1 year after exercise, and
2 years after the grant = long-term capital gains qualification.

Why Holding Too Much Company Stock Is Risky?

Your salary, RSUs, and career are all tied to your company. If the stock plunges, you lose on every front: compensation, equity, and morale.

The Smart Strategy

Set up a 10b5-1 plan to sell shares systematically after the lock-up expires
Reinvest proceeds across diversified assets (index funds, bonds, real estate)
Avoid emotional decisions, plan in advance.

Multi-State Tax Issues for Remote Tech Workers

California Won’t Let Go Easily

Even if you moved out of California before IPO, the state may still tax a portion of your RSU income, based on how many days you worked there while your shares were vesting.

What to Watch Out For?

File part-year returns accurately
Track workdays by state for RSUs granted pre-move
Expect aggressive scrutiny from California’s Franchise Tax Board.

What Happens If You Don’t Plan?

Tax shock: You owe more than your liquidity allows.
Stock collapse: Value disappears, but taxes remain.
Overconcentration: Your career and wealth sink together.

Audit risks: Misreporting RSUs or state allocations can trigger IRS or FTB audits.

Don’t Let Your IPO Moment Become a Tax Nightmare

Your company’s IPO could be the most exciting and dangerous moment of your financial life. Without a plan, it can leave you:

Taxed on paper wealth you never see
Overexposed to one volatile stock
Struggling to pay taxes with falling shares
But with the right RSU financial advisor, you can turn your IPO into lasting wealth, not fleeting paper gains.

Your Next Steps:

Partner with an experienced financial fiduciary in San Francisco who understands IPOs, taxes, and equity compensation, so you can turn your paper wealth into lasting financial security. Book a free consultation below:

Why Could Your Company’s IPO Put Your Finances at Risk?

Key Takeaways

RSUs vs ISOs vs NSOs

Why AMT is a Silent Killer?