To align the goals of a company with its employees', a greater number of companies from start-ups to multinationals are compensating their employees with company stock.  Depending on the specific details of the stock and/or option compensation, tax planning can save the client significantly in taxes.  We have extensive experience running tax impact simulations for multiple stock and option scenarios, and minimizing the tax impact over a multi year time horizon.  Below are descriptions of the most common type of stock and option compensation.

 

Restricted Stock Units (RSUs):  Stock issued to an employee that is treated as taxable ordinary income when the shares vest.  The key dates for RSUs are the grant date, vesting date, and sale date.  Taxes are typically withheld by the company on your W2 by selling a portion of the shares on the vesting date.  For start-ups with a low initial valuation, a 83(b) election on the shares grant date could avoid a taxable event when shares vest. 

​

Incentive Stock Options (ISOs):  An option to purchase company stock at a predetermined price that can be exercised once the options vest.  ISO shares can be taxed as ordinary income, or at the potentially lower long term capital gains rates if holding period thresholds are meet.  The standard tax calculation and the Alternative Minimum Tax (AMT) calculation treat exercising ISO shares differently.  Detailed tax planning, including running tax simulations, is necessary to calculate how many options can be exercised without a taxable event (before AMT is triggered).   

​

Nonstatutory Stock Options (NSOs):  Stock options that are taxed as ordinary income on the difference between the strike price and fair market value.  Companies may withhold taxes by selling shares when exercised, but this is company specific.  Depending on the client's financial and tax situation,  exercising only if the company is public or has a liquidity event may be beneficial.

​

​

​

​