How to Decide How Much Stock to Sell in a Private Company Tender Offer

What does a private company tender offer cost in tax at 25%, 50% or 100%?

Selling shares held more than 1 year produces long-term capital gain, and at an assumed 23.8% federal rate (20% plus the 3.8% net investment income tax) each $100,000 of gain costs $23,800. Carol (hypothetical, round numbers) is 48 and a VP of engineering at a public cloud company.

She is a single parent of 2 teenagers and files as head of household. About $3 million of her employer stock sits behind quarterly blackouts and a pre-set trading schedule. She also still owns 20,000 vested shares of a startup she left 6 years ago, basis $2 a share, and its tender offer pays $40.

Which income counts matters first. ISO shares need 2 years from grant and 1 year from exercise, or the spread becomes ordinary income. If the company itself pays above fair market value, the IRS can treat the excess as wages on a W-2. The 3.8% tax applies above $200,000 of MAGI for single and head of household filers ($250,000 joint), and a large tender gain usually crosses it.

Four steps you can repeat. Tender price minus basis is the gain per share: $40 minus $2 is $38. Gain per share times shares sold is the total gain. Total gain times 23.8% is the tax. Proceeds minus tax is the cash you keep.

Carol's sale sizes, step by step

Shift versus save

Carol's choice: fund both 529s, keep half

Carol's college dates are fixed, and her public employer stock can only be sold on blackout and trading-schedule terms. That makes this tender the only cash she can reach on her own timing. Superfunding 2 529s at $95,000 each needs $190,000. At 25% her $154,780 net falls short. At 50% she covers both, keeps $119,560 and holds 10,000 shares for a possible IPO. Before Edward Jones Investments suggests a sale size, it lists the spending due before any plausible IPO and checks what the tender can cover.

Splitting the sale over 2 tender rounds only saves tax if your rate differs between the years. At Carol's income the 3.8% tax applies in both years, so splitting mostly moves the bill. Picking long-term lots over short-term lots is a real saving. So is leaving out ISO shares that haven't met the 2-year and 1-year tests.

Quick test: tender at least enough to fund, after tax, every expense due within 5 years that your other liquid assets can't cover, starting with lots held more than 1 year. Keep only shares you could watch lose most of their value without moving any of those due dates. A calculator on this site runs the same 4 steps with your numbers.

Two mistakes often show up together: tendering ISO shares exercised only 8 months earlier, and skipping the estimated tax payment. For a seller in the 37% bracket, $100,000 of spread taxed as ordinary income costs $13,200 more than it would at 23.8%. Miss the quarterly payment too, and the IRS adds an underpayment penalty that accrues like interest until April.

Put the offer window, closing and estimated tax due dates on one calendar

The order runs like this: offer documents arrive, then an election window of at least 20 business days under SEC tender rules, then closing and payment (often several weeks later). After that come the next quarterly estimated tax due date, December 31 for any gift or loss harvest, and April 15 for the return. Pull every Form 3921 and your original purchase records before the window opens, because you can't fix a lot choice afterward. If last year's AGI was over $150,000, paying 110% of last year's total tax through withholding and estimates is an IRS safe harbor. Otherwise send an estimated payment by the next due date (April 15, June 15, September 15 or January 15), about $90,440 in Carol's 50% case.

Did the charitable deduction and 529 rules change for tender sellers?

Yes. Itemized charitable gifts now count only above 0.5% of AGI, and deductions for people in the 37% bracket are capped at a 35% value, which matters for Carol's $50,000 annual giving. A 529 open at least 15 years can now roll up to $35,000 lifetime into the beneficiary's Roth IRA.

Late-stage companies also stay private longer and run recurring tenders, so a playbook built on holding everything until the IPO should be redone. Donating appreciated stock is covered on its own page, as is QSBS.

What happens to unsold tender shares if there's no IPO, or if they pass to heirs?

Unsold shares stay illiquid: they can fall at the next funding round, the company can stay private for years, and a health problem can force a cash need while you can't sell. Size what you keep by what your spending playbook can afford to lose. Any investment can drop below what you paid for it, and with private shares you usually have no way to sell when the price falls.

Heirs get a stepped-up basis at death, which wipes out the embedded gain but leaves them holding illiquid shares. Minors like Carol's teenagers can't hold them directly, so a custodial account or trust and an updated beneficiary designation come into play.

Many tenders cap sales at a fraction of vested shares, so the 25/50/100 choice may not exist. This article leaves out state income tax, QSBS treatment and the fairness of the tender price, which no one can judge against an IPO that hasn't happened.

Which tender decisions can you make alone, and which need Edward Jones Investments?

You can run the 4-step tax math, pull your Forms 3921 and mark the election window and estimated tax due dates yourself. Choosing the sale size against your 5-year spending, deciding which lots to tender and fitting the sale around blackout-locked public stock, college funding and giving is worth a conversation with Edward Jones Investments.

We explain the fee for that work when we first talk and put it in writing before any work begins. For related reading, see the pages on IPO lockup expiration and RSU tax planning.