How to Sell Stock Options in a Private Company: Routes, Taxes and a Worked Example

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

You usually cannot sell stock options in a private company. You sell the shares you get by exercising them, and only when the company allows it: in a company tender offer or buyback, in a secondary sale the company approves, or when the company goes public or is acquired. Incentive stock options (ISOs) cannot be transferred at all while you are alive (IRS Publication 525), so a buyer who promises to purchase “your options” is really offering a contract on shares you do not yet own.

For a two-income household in the Bay Area or Seattle, with one parent at a late-stage private company and the other on a W-2 salary, the real questions are narrower: when a liquidity window opens, how many shares to sell, whether to exercise first, and what California or Washington will take. This guide walks through the routes, the tax math at a $950,000 household income, and the decision itself.

The four ways private company shares actually get sold

Your stock plan and the company’s bylaws decide which of these are open to you. Read both before you talk to any buyer.

So the honest answer to “where is the best place to sell private company stock options” is: wherever your company permits, which for most employees means waiting for a tender. For how those programs work, see our guide to tender offers.

Steps to sell when a liquidity window opens

1. Pull your grant documents. For each grant: ISO or NSO (nonqualified), grant date, strike price, number vested, and expiration date. An ISO can run no longer than 10 years from grant (IRC §422(b)(3)).
2. Read the offer terms. Price per share, the maximum you may sell, whether you can sell vested options by exercising and selling in one step, and the deadline.
3. Check your ISO dates. Shares sold less than 2 years after grant or less than 1 year after exercise fail the holding period, and part or all of the gain is taxed as ordinary income, reported as wages (Pub 525). Shares from ISOs you exercised years ago may already qualify.
4. Run the tax in both states you might care about. Federal, California or Washington, and AMT if you are exercising and holding.
5. Decide the amount and set aside the tax. A same-day exercise and sale of ISOs often has little or no withholding, so plan an estimated payment for that quarter.

If you are leaving the company, add one more date. ISO treatment generally requires exercise within 3 months after employment ends (Pub 525). After that, the option is taxed as an NSO, and many plans cancel unexercised options outright after a set period.

How the sale is taxed

NSOs

When you exercise an NSO in a private company, the spread (fair market value minus strike price) is wage income, reported on your W-2 (Pub 525). For 2026, employers can withhold federal tax at a flat 22% on supplemental wages and must withhold 37% on supplemental wages above $1,000,000 in the year (IRS Publication 15). In the 35% and 37% brackets, 22% withholding usually leaves a balance due in April. The spread also carries Medicare tax (1.45% plus the 0.9% Additional Medicare Tax above $250,000 of joint wages) and, in California, 1.3% SDI on all wages for 2026 (EDD).

ISOs

There is no regular income tax when you exercise an ISO. What happens next depends on the sale date:

• Qualifying sale (at least 2 years after grant and 1 year after exercise): the whole gain over the strike price is long-term capital gain.
• Disqualifying sale (sooner, including most same-day tender sales): the gain is ordinary income up to the spread on the exercise date, and any gain above that is capital gain (Pub 525).

If you exercise ISOs and keep the shares past December 31, the spread counts toward the alternative minimum tax (Form 6251 instructions). California has its own AMT and counts ISO spreads there too (FTB Schedule P (540) instructions).

Worked example: a $950,000 household with a tender at $15

Assumptions (illustrative): married filing jointly, $950,000 of combined W-2 income, about $900,000 of taxable income before any stock sale (federal and California, for simplicity), itemizing with the SALT deduction limited to $10,000. One parent holds 20,000 vested ISOs with a $2.00 strike. The company’s current 409A value is $12. A tender offer is buying shares at $15.

Gross proceeds are $300,000 (20,000 x $15). The strike cost is $40,000. The pre-tax profit is $260,000.

Option A: exercise and sell in the tender (disqualifying sale)

• Ordinary income: 20,000 x ($12 minus $2) = $200,000, taxed at 37% federal (this household is already above the $768,700 start of the 2026 top bracket): $74,000.
• Short-term capital gain: 20,000 x ($15 minus $12) = $60,000, taxed at 37% plus the 3.8% net investment income tax: $24,480. This split assumes the company reports the $12 409A value as fair market value on the exercise date. If it uses the $15 tender price instead, the full $260,000 is ordinary income: the same 37% federal rate, but no 3.8% tax on the $60,000.
• California: the $260,000 lands in the 11.3% bracket (2025 schedule, the latest published), $29,380, plus the 1% Behavioral Health Services Tax on the $160,000 of taxable income above $1,000,000, $1,600. Total $30,980.

Total tax is about $129,460. The family keeps about $130,540, roughly half the profit, with no cash out of pocket and no risk left in the stock.

Option B: exercise now, sell in a later tender after the holding period

• Federal on a $260,000 long-term gain, at 20% plus 3.8%: $61,880.
• California: about the same $30,980, because California taxes capital gains as ordinary income (FTB).
• AMT in the exercise year: in our assumed numbers, the $200,000 spread creates roughly $27,000 of federal AMT. It can generally be recovered as a minimum tax credit in later years when regular tax exceeds the tentative minimum tax (IRS Form 8801). For a household like this one, whose regular tax is well above its minimum tax in a normal year, much of it may come back within a year or two, but it is cash paid up front.

Option B saves about $36,600 of federal tax, roughly $1.83 per share. To get it, the family writes a $40,000 check for the strike, pays about $27,000 of AMT up front, and holds a single illiquid stock for at least a year with no promise of another tender. California saves nothing. A modest drop in the next tender price, or no tender at all, erases the benefit.

The same family in Washington

If this household lived in Bellevue, Option A would owe no state tax in 2026: Washington has no wage income tax (WA DOR), and its capital gains tax applies only to long-term gains. Option B’s $260,000 long-term gain would fall under the $278,000 standard deduction (2025 figure; the 2026 amount is not yet published) if the family had no other long-term gains that year. Above the deduction, the rate is 7%, rising to 9.9% on taxable gains over $1,000,000 (WA DOR). Two caveats for this income level: Washington has enacted a 9.9% income tax on AGI over $1,000,000 starting January 1, 2028, and moving between states while holding options raises sourcing questions worth modeling before the move.

The decision most families actually face

At this income, the question is rarely “how do I minimize tax on this sale.” It is “how much of our net worth should sit in one private company our family cannot sell.” A reasonable test:

• If the private stock is more than your liquid savings, selling the maximum the tender allows usually matters more than the ISO holding-period saving.
• If you have near-term cash needs (a home purchase, a private school commitment), sell for certainty.
• If you already hold ISO shares past the holding period, sell those first. They get long-term treatment with no extra wait.
• If you want to keep upside, exercise and hold only an amount you could lose entirely without changing your plans, and budget the AMT before you exercise.

We cover the concentration side of this in our investment risk management work and the tax modeling in tax management.

Common mistakes

• Trusting the withholding. 22% supplemental withholding on an NSO exercise, or none on a same-day ISO sale, leaves a large April bill in the 37% bracket.
• Letting ISOs expire after leaving. The 3-month rule and the plan’s own post-termination window are separate deadlines. Check both.
• Signing with an outside buyer before checking transfer rules. If the sale breaks the transfer restrictions, the company can refuse to record it, and you may be left with a contract you cannot perform.
• Mixing up 83(b) and options. An 83(b) election applies to restricted stock and early-exercised options, and must be filed within 30 days of the transfer. It does not apply to ordinary vested option exercises or to RSUs. See how to draft an 83(b) election.
• Assuming a cashless exercise avoids tax. It avoids the cash outlay, not the tax. See tax on cashless exercise.

What to write down for your kids

A tender is one of the few moments when a family decides, on a deadline, how much risk it is willing to carry and why. Write a short note: what you sold, what you kept, the reasoning, and what you would do differently. Years from now, when your children receive their first equity grant, that note will teach more than the dollar amount. Conversations fade. Documentation compounds.

Frequently asked questions

Can I buy stock in the company I work for?

At a public company, usually yes: through an employee stock purchase plan if one is offered, or on the open market outside blackout periods and within the company’s insider trading policy. At a private company, employees generally acquire shares only by exercising options, receiving grants, or through an offering the company makes to employees. You cannot buy private shares on a public exchange.

What happens to my options if the company is acquired?

The merger agreement decides. Vested options may be cashed out for the spread, converted into options of the buyer, or, if underwater, cancelled. Unvested options may be converted, accelerated, or forfeited. Read the plan’s change-of-control section now, not after the announcement. More in what happens to your stock when a company sells.

Should I sell everything the tender allows?

Often, for families whose private stock is a large share of net worth, but it depends on the rest of the picture: liquid savings, how long you plan to stay, and whether your ISOs have met the holding period. A qualified sale later can save federal tax, but it trades certainty for a one-year bet on an illiquid stock.

Next step: before the next liquidity window, list every grant with its type, strike, grant date and expiration, and run Option A and Option B for your own numbers. If you would like a second set of eyes, our Tax & Wealth Assessment covers exactly this.

This is general education, and the right move depends on the family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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