Recently Public: Lockup Expiration, Concentration Risk, and First Liquidity

The 12-24 months after your company goes public are when equity compensation becomes liquid and your most important tax decisions happen. Understand lockup period constraints, how to diversify a concentrated position tax-efficiently, and why holding period tracking and wash sale rules suddenly matter.

Lockup period constraints. Most IPOs include a lockup period, typically 90 to 180 days, during which employees cannot sell shares. When the lockup expires, you face your first real decision window. The stock price often drops at lockup expiration as employees and early investors sell, so timing matters both financially and tax-wise.

Concentrated position risk. After an IPO, employees often find that a disproportionate share of their net worth is in one stock. Diversifying makes financial sense, but selling triggers taxes. A CPA helps you plan a selling schedule that balances diversification urgency against tax efficiency, including strategies like spreading sales across tax years or offsetting gains with losses elsewhere.

Wash sale rules matter now. If you sell company stock at a loss and buy it back within 30 days (including through RSU vests or ESPP purchases), the wash sale rule disallows the loss deduction. This catches people who sell some shares, take a loss, and then receive more shares through a vest within the 30-day window.

Capital gains holding periods. Shares acquired through ISO exercise, RSU vesting, or ESPP purchase each have different dates that start their holding period clock. The difference between short-term and long-term capital gains rates can be 15 to 20 percentage points, so knowing exactly when each lot of shares qualifies for long-term treatment is worth real money.

The tradeoff: Post-IPO is when you have the most liquidity and the most choices, but also the most ways to make expensive mistakes. The window between lockup expiration and year-end is often the most important tax planning period for equity compensation holders.