When an Eight-Figure IPO Windfall Can Mean a Zero-Digit Tax Bill

Early investors and employees at Uber Technologies Inc., Lyft Inc., and other tech companies are getting a double reward this year: a wave of initial public offerings that puts billions of dollars in their pockets, and a quirk in the law that means some of that money will be tax-free.

Entrepreneurs, venture capital firms, and early startup employees are using the Qualified Small Business Stock, or QSBS, provision to partially or totally wipe out their tax bills. “It’s an awesome way to mitigate tax,” says Richard Scarpelli, head of financial planning at First Republic Private Wealth Management. Of ...