The $30 million gap

Taxes take a large bite on the way out. Most people have a rough sense of this.

Ask a founder what they'll keep from a $75 million exit and they'll say something like "maybe $50 million after taxes?" That's the ballpark answer. The actual number, for a California-based founder selling appreciated stock with no advance planning, is worse.

Here's the math. Federal long-term capital gains: 20%. Net Investment Income Tax: 3.8%. California, which taxes capital gains as ordinary income: up to 13.3%. That's a combined rate of 37.1% before you account for deal advisory fees, rep and warranty insurance, and the other transaction costs that come off the top.

On $75 million in gross proceeds, the total leakage can reach $30 million. You keep about $45 million.

Forty-five million dollars is still a lot of money. We're not arguing otherwise. But $30 million walked out the door, and a meaningful share of it didn't have to.

The strategies to keep 90% of the exit are well-documented. They just have hard deadlines that fall before the deal closes.

This is the part that tends to make people angry after the fact. The tools that could have preserved $20–25 million of that tax bill are not new. They're provisions of the Internal Revenue Code that sophisticated tax counsel implements regularly. The problem is timing. Every one of them has an expiration date, and that date arrives before the closing.

What follows are the publicly known strategies. We're describing them here because they illustrate the mechanics and the timing constraints. They are not the full toolkit. The structures we build for clients go well beyond these, layering multiple strategies in combinations that are specific to the founder's entity structure, family composition, state of residence, deal terms, and long-term wealth objectives. Those don't belong in an article. They belong in a conversation.

QSBS, Section 1202

Section 1202 lets non-corporate shareholders exclude up to 100% of capital gains on qualified small business stock held more than five years. The exclusion is capped at the greater of $10 million or 10x adjusted basis per shareholder (the OBBBA raised the cap to $15 million for stock issued after July 2025). A founder who gifted QSBS to family members and trusts over the preceding years can shelter $30–60 million in gains across multiple shareholders. But the stock has to qualify from issuance. The corporation can't have crossed the $50 million gross asset threshold without documentation. And gifting to family trusts takes time to structure. None of this can be done retroactively.

Charitable remainder trusts

A CRT funded with appreciated pre-sale stock eliminates capital gains on the contributed shares and generates a partial charitable deduction immediately. The trust pays income to the founder or family for life. On $10 million of appreciated stock, a well-structured CRT can eliminate the entire capital gain on those shares while producing 5–7% annual income to the grantor.

The catch: the trust has to be established and funded before the sale closes. After the wire hits, you're contributing cash, not appreciated stock. The economics change completely.

Installment sales to intentionally defective grantor trusts

An installment sale to an IDGT spreads gain recognition over the term of a promissory note and moves all future appreciation out of the estate. Because the trust is "defective" for income tax purposes, the sale itself isn't a taxable event during the grantor's lifetime. The trust, the note, and the sale all have to be structured and executed before the transaction closes. You can't sell stock you no longer own.

Opportunity Zone deferrals

This is one of the few strategies still available after closing. Capital gains can be deferred by investing in a Qualified Opportunity Fund within 180 days of the sale. But it only defers the gain, it doesn't eliminate it, and it requires locking capital into a designated investment for 10+ years. It's a tool, but it doesn't do the heavy lifting that the strategies above do when they're implemented early.

These four are the ones you'll find in any tax planning overview. What you won't find in an article is how they interact with each other and with less commonly discussed structures: private placement life insurance, completed gift non-grantor trusts, pre-sale basis shifting, split-interest charitable structures timed to deal milestones, and strategies built around the specific mechanics of the purchase agreement itself. The architecture we design for each client uses some combination of all of the above, calibrated to their specific situation. The $67.5M net in the example below is conservative. With a full 18-month planning window and the right fact pattern, the number can be higher.

Which strategies are still available to you?

Every tool has an expiration date. Where you are in the timeline determines what's left.

The M&A attorney is focused on the deal. The CPA is focused on the return. Nobody sits between them, mapping the tax implications of every deal term in real time. That's the gap where the money goes.

The $22.5 million isn't the real number. The real number is what it would have become.

I want to slow down here, because this is the part most people skip past. The day-one difference between $45M and $67.5M looks like a tax savings story. It is. But it's also a permanently reduced capital base on which all future compounding operates. And compounding is brutal about initial conditions.

Two founders. Same $75M exit. Founder A kept $45M (no planning). Founder B kept $67.5M (planned). Both deploy the same allocation after close:

Founder A puts $25M into income and has $20M left for growth. Founder B puts $25M into income and has $42.5M left for growth. Both draw the same $1.75 million per year to live on. The income portfolio is identical. The growth portfolio is where the divergence happens.

Year	Founder A (Growth)	Founder B (Growth)	Gap
0 (exit day)	$20.0M	$42.5M	$22.5M
Year 1	$23.0M	$48.9M	$25.9M
Year 2	$26.5M	$56.2M	$29.7M
Year 3	$30.4M	$64.6M	$34.2M
Year 4	$35.0M	$74.3M	$39.3M
Year 5	$40.2M	$85.5M	$45.3M
Year 6	$46.3M	$98.3M	$52.0M
Year 7	$53.2M	$113.0M	$59.8M
Year 8	$61.2M	$130.0M	$68.8M
Year 9	$70.4M	$149.5M	$79.1M
Year 10	$80.9M	$171.9M	$91.0M

Look at the gap column. It starts at $22.5 million. By Year 5 it's doubled. By Year 10 it's $91 million, more than four times the original difference. And this is only the growth portfolio. Same strategy, same returns. The only variable is how much went in on day one.

I keep coming back to that number. A founder who spent 12 years building a company, negotiated a strong exit, and then lost $22.5 million to avoidable taxes. That's bad on its own. But the actual cost, measured over just a decade of compounding, is 4x the original loss. The tax bill wasn't $22.5 million. It was $91 million. You just didn't see all of it on closing day.

The compounding divergence

$20M vs. $42.5M at 15% CAGR over 10 years.

Now add the income portfolio back in. Both founders earn $1.75M/year for 25 years. That's $43.75M each in cumulative income. Combine that with the growth portfolio and the $25M principal:

Year	Founder A (Total Wealth)	Founder B (Total Wealth)	Gap
Year 1	$48.8M	$75.6M	$26.8M
Year 2	$53.3M	$83.0M	$29.7M
Year 3	$58.2M	$91.4M	$33.2M
Year 5	$73.9M	$119.3M	$45.4M
Year 7	$96.0M	$155.8M	$59.8M
Year 10	$123.4M	$214.4M	$91.0M

The gap opens immediately.

The Year 10 number makes the compounding point. But the practical difference hits well before that. At Year 5, the first liquidity window, Founder B's growth portfolio is $85.5M. Founder A's is $40.2M.

Founder B could pull $10 million off the table for a real estate acquisition or a new venture and still have $75.5 million compounding. That's nearly double what Founder A has without withdrawing a cent.

Year	Founder A	Founder B	What B Can Do That A Can't
Exit day	$20M liquid	$42.5M liquid	Fund 2x the initial deal flow
Year 3	$30.4M	$64.6M	Headroom for opportunistic investments; A is constrained
Year 5	$40.2M	$85.5M	Take $10M off the table, still outpace A's total
Year 10	$80.9M	$171.9M	Seed a family foundation with $20M, keep compounding at $150M+

The tax decision didn't just change the spreadsheet. It changed what each founder can actually do with their money at every checkpoint along the way.

What each founder can do at each milestone

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We call this the tax drag multiplier.

Financial planners talk about tax drag on investment returns. The annual friction from dividends, distributions, rebalancing. That's real, but it's small compared to what happens when a one-time tax event permanently reduces the base on which compounding operates.

At 15% CAGR, every $1 million lost on exit day becomes $4.05 million of lost wealth over 10 years. Extend the horizon further and the numbers get uncomfortable fast.

What every $1M lost on exit day becomes

At 15% CAGR, the tax isn't what you paid. It's what you'll never earn.

So the $22.5 million Founder A lost to taxes doesn't cost $22.5 million. It costs $22.5 million times 4.05. That's the $91 million gap at Year 10. And if these founders stay invested for 20 or 25 years, the gap keeps widening: $368 million at Year 20, $740 million at Year 25. You don't feel it all on exit day. You feel it every year, in the form of a portfolio that's permanently smaller than it should have been.

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What we don't publish here.

We're not going to lay out the specific implementation sequences in an article. Not because they're proprietary, but because the strategies that move the needle most are built around the particular facts of each client's situation. The publicly known tools we described above are the starting point. The structures that produce the largest savings are composites: multi-strategy architectures designed around a specific deal, a specific family, a specific state, and a specific set of long-term objectives. Two founders with identical exit values can end up with completely different tax plans, because the variables that determine what works are different.

A CRT that saves one founder $5 million might not make sense for another. A QSBS gifting strategy that shelters $40 million for one family might shelter $15 million for a different one. And the strategies we don't name in this article, the ones that are situation-dependent and require close coordination between tax counsel, estate attorneys, and investment advisors working in concert, are where the most significant savings come from.

The point of this piece is the math. The cost of not planning is not $22.5 million. It's what $22.5 million becomes when you compound it forward, even over just 10 years. And that number should change the urgency of the conversation for anyone who is 12 or more months from a potential liquidity event.

If you're closer than 12 months, some strategies are still on the table, but the menu is shorter. Every month that passes, another one comes off. If you're past the close, the question is how to deploy what you kept as efficiently as possible. That's a worthwhile conversation too, but it's a different one.

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