1. Know what you actually own

Start with structure. Do you have ISOs, NSOs, RSUs, or restricted stock? Each bucket is taxed differently, and guessing can be expensive. This is why you need to understand what taxes apply to private company shares before you approve a transfer, because tax treatment depends on type, timing, and value. ISOs can qualify for long-term capital gains if you hold them long enough. NSOs usually show up as ordinary income, and RSUs can be taxed when they vest, even if you cannot sell them yet.

2. Track your holding period

Taxes reward patience. If you hold stock for more than one year after you exercise it, your profit may qualify for long-term capital gains. Long-term rates are usually lower than salary rates. If you sell too fast, that same profit can be taxed like wages. 

This gap can mean tens of thousands of dollars. Write down two dates: the day you exercised, and the day you plan to sell. If you are under a year, waiting can be cheaper than rushing.

3. Watch the 409A valuation

Your tax bill starts with something called a spread. Spread is the difference between your strike price (what you paid to exercise) and the fair market value on that same day. Fair market value comes from the company’s 409A valuation. If the 409A shoots up before you exercise, the spread gets bigger, which means more income to report. You can owe tax even if you have not sold a single share. This is why you should plan exercise timing before you resign or before the next valuation update.

4. Plan for cash and withholding

Paper gains do not pay taxes, but cash does. In a tender offer or secondary sale, you may not receive the headline number in the offer email. The buyer or the company may hold back part of the payout for taxes and fees. This feels annoying, but it protects you from a big April bill with no cash to pay it. Ask one question before closing: after taxes and fees, what amount lands in my account? This is the only number that matters.

5. Expect review and paperwork

Startup equity is not like public stock. Private companies control who holds their shares, and they screen every transfer. You may have to certify that you are not using insider information. You may also have to offer the shares back to the company first because of the right of first refusal. 

Additionally, you may have to wait out a blackout window. Legal, finance, and sometimes the board will all look at it. Do not take the delay personally. This is how the company protects its cap table before a fundraise or IPO.

Endnote

Selling startup shares can pay off debt, build savings outside one risky company, or fund real-life needs. Just do not guess. Know what you hold, know the tax path, and know your true net number. The goal is to turn paper value into money you actually keep when tax season hits.