Incentive Stock Options – Part 3: Decision-Making

By now, you’ve hopefully developed a baseline understanding of just what exactly incentive stock options even are and have a working sense of how taxes fit into the equation. Equipped with that knowledge, the final step in readying yourself to make the most of your equity is to put all the pieces together. In this post, we put rubber to the road and dissect many of the decisions you’ll likely face with ISOs!

When it comes to ISOs, here are the high-level decisions you’ll face…

Evaluate if you even want to exercise at all
Determine how much you’ll exercise
Calculate the cost to exercise
Plan for how you’ll cover the cost
Develop a strategy for when to exercise
Decide when the shares will be sold

And, of course, manage the tax consequences throughout. It amounts to quite a bit, so the best thing you can do to position yourself for success is to get ahead of it!

TO EXERCISE OR NOT TO EXERCISE?

Options are just that – options. You’re not required to do anything with them at all (though you often should!).

Evaluating whether or not to exercise is an investment decision above all else. So you have to first assess your personal comfort level with investment risk and understand how such risk will influence the rest of your financial picture. While ISOs have the potential to create real wealth, it’s also possible to lose money. Therefore, some initial questions you’ll need to answer first include:

How much do I believe in this company?

If you’re super confident in its future success, then maybe it’s worth investing your money.
If you’re doubtful, set some limits on what you put in, if anything at all.

How diversified is the rest of my investment portfolio?

When you exercise, you now own stock in your company. Owning too much of any single stock creates added risk – think, “don’t put all your eggs in one basket”.
Would exercising mean that a majority of your net worth is now tied directly to the performance of your employer? If this is the case, tread carefully.
Once a holding of an individual stock starts to exceed 5% of your total liquid net worth, we want to be especially careful and really consider the impact on your goals given that stock’s potential performance.
On the other hand, if after exercising you’d still have a healthy amount of your net worth allocated to other investment accounts that are well-diversified to suit your goals and risk tolerance, then it becomes a less risky decision to own the shares in your company.

Is my company private or public?

This gets into how easily you’d be able to sell the shares after exercising.
If your company is still private, know that it may be difficult (or impossible) to sell the shares until there’s some type of liquidity event, such as an IPO or acquisition. This can add a level of risk to the decision.
If your employer is already public, or about to be, then selling will be far easier (though you may still need to be mindful of “blackout windows” during which you cannot sell). This can make exercising a little more manageable if you want to be able to quickly pivot away from holding the stock.

Can I afford the cost to exercise?

We’ll dive more into how you can pay for the exercise below, but there’s certainly a real cost involved.
Ultimately, it’s important to balance this with everything else you have going on.

As we continue from here, we’re going to examine very specific scenarios at each of the following stages…

HOW MUCH TO EXERCISE

Exercise up to the AMT limit as a ceiling

If you’re looking to optimize ISOs in such a way that the only taxes owed are long-term capital gains (no AMT or ordinary income tax), then this is the way to go.

The way it works… You’ll want to determine the available spread you could realize before tipping the scales into AMT territory. This will tell you how many options can be exercised without pushing you out of the standard tax system and then owing AMT. Staying within this limit means no taxes are owed in the year of exercise. For those who have a big pile of ISOs built up, it often means implementing this strategy over multiple years to exercise them all without ever triggering AMT.

Note: You would NOT want to do this if you have a large AMT credit, since it would diminish or prevent your ability to recoup that credit.

* A SPECIAL SECTION ON THE AMT CREDIT *

Hearing that you might owe more, or a different kind of tax can be anxiety-inducing. And it’s a valid response. The “standard” income tax system is unnecessarily complicated on its own. To learn there’s an additional tax system that often comes into the picture for those with ISOs is enough to make some people dizzy.

What is the AMT credit?

In reality, paying AMT isn’t always worth avoiding like the plague. That’s because you get a tax credit when AMT is paid. This credit is equal to the difference between the tax liability of the two systems. For example, if your AMT liability was $200,000 and your standard tax liability was $150,000…

First of all, you’d pay AMT that year because it’s higher.
Second, you’d get a credit of $50,000 ($200k – $150k).

Using the credit

This credit can then be used in future years, but only in years that your standard tax bill is higher (meaning you pay taxes under the regular system, not AMT). Additionally, the amount of credit you can use in those years is limited to the difference between the two tax liabilities. So let’s say you have the same $50,000 credit from above for a prior year and your current year’s tax situation looks as follows:

Standard tax liability: $175,000
AMT liability: $150,000

You’d pay the standard tax because it’s the higher amount, and you’d only be able to use $25,000 of the $50,000 credit for this year ($175k – $150k). The remaining $25,000 of unused credit carries forward to future years.

All this to say...

If you unexpectedly exercise ISOs to a point that forces you to pay AMT in a given year, all is not lost! Depending on the amount, it may be possible to “get it back”. Still, be mindful that if there’s a large enough bargain element, it could be quite a hurdle to cover the subsequent AMT bill that’s been created come April in the year following exercise – at least if you want to avoid selling the shares. Further, the process for recouping an AMT credit adds even more complexity that some may prefer to do without. There’s additional nuance involved that’s outside the scope of this post.

CALCULATING THE COST

This is straightforward! Simply multiply the exercise price (AKA strike price) by the number of options you plan to exercise.

Example...

# of Vested Options: 500
Strike Price: $4.50
Cost to Exercise 500 Options: 500 x $4.5 = $2,250

* this does not include potential AMT, which should be factored into the cost if applicable *

HOW YOU’LL COVER THE COST

All stock option plans allow you to exercise by paying for the options with your own cash. Some plans will also allow for what’s called a “cashless” exercise, meaning you don’t have to come up with the funds yourself.

So, if you have the choice to make, the question becomes… Exercise with cash or go cashless?

How a cash exercise works…

Simply come up with the cash (for example: take money from savings)
Once you exercise, it’s entirely up to you as far as what you do with the shares next
- When you sell…
- How many you sell…
- How you cover the tax liability…

How a cashless exercise works…

First, you need to check the details of your company’s stock plan to confirm that this exercise method is allowed by your employer.
If it is, then you’ll need to select one of two routes for your cashless exercise:

Exercise and sell to cover
- In this transaction, the desired number of options is exercised and, at the same time, enough shares are immediately sold so that just enough money is raised to cover the exercise cost (along with any fees and taxes).
- You keep the leftover shares to then sell when you want down the road.
- Put simply: exercise without bringing money to the table and walk away with shares in the company.
Exercise and sell all
- Choosing this method means that your desired options are exercised and then ALL of the shares are simultaneously sold.
- In doing so, a portion of the proceeds is used to cover the cost of the exercise, plus any fees and taxes. The rest is paid out to you.
- Put simply: exercise without bringing money to the table and walk away with just cash.

So which one should you go with?

Consider a cash exercise if…

You have plenty of liquidity (easy access to cash) over and above your emergency fund + any short-term needs, and are ok with the increased concentration of your wealth into the company stock.
You want to maximize the number of shares you’re able to hold onto.
You want the most control of the tax consequences and are targeting a qualified disposition for as many shares as possible.

Consider a cashless exercise if…

You aren’t in a position to pull from savings or other resources to foot the bill.
You are ok with some (or all) of the shares being sold right away as a disqualified disposition.
You are ready to quickly capitalize on the value of the stock options

WHEN TO EXERCISE

There are a lot of alternatives when it comes to the timing of your exercise:

Earlier in the overall vesting schedule
Waiting until later on in the vesting schedule, or beyond
An “early exercise” before they even vest
Early within a calendar year
Later in the calendar year

Why consider exercising sooner in the grand scheme of your award vest? (not referring to an 83b election – just earlier rather than later)

Get a jump on the holding period requirement for the shares to be classified as “qualified” when eventually sold, earning long-term capital gains tax treatment on the full difference between the exercise price and FMV at sale.
Allow yourself to exercise more options, given the AMT threshold…
- Earlier on in the lifecycle of your award grant and vest timeline, it’s more likely that the current FMV/409A of your company is lower, thus closer to whatever the exercise price of the options is (or in some cases, the same).
- If the spread is smaller, you’ll be able to exercise more options without pushing into AMT territory compared to if the FMV/409A of the company balloons significantly.
- In short: lower spread = lower AMT income realized
You’re confident in the future performance of the company and expect the share price to increase. Plus you’re ok with the risk that the price could also go down if the company takes a turn, leading to a loss on your investment.
You anticipate some type of liquidity event (IPO/acquisition) that would allow you to cash in on the shares in the future.

Why consider exercising later?

You’re not confident in the future trajectory of the companyand you’d prefer to see how the share price moves before putting up the money to exercise the options.
The options are currently “out of the money”… This means that the strike price is higher than the current FMV/409A. In other words, there’s no value to be gained. You’d pay more to exercise the options that you could get for selling the shares.
You don’t have the cash on hand to easily cover the cost and/or there’s no ability for a cashless exercise.

Ok, what if you are able to “early exercise” with an 83b election?

Some companies will give you the ability to exercise your options early – even before they vest. If this is the case, it could deliver a big tax win.

The way it works… Instead of waiting a year+ to start exercising in many cases (based on the vesting schedule), you could choose to do so as early as being granted the options. Remember, the spread between the strike price and FMV at the time of exercise is what counts as income for calculating AMT. If this spread is very small, or even nonexistent due to the 409A being the same as the strike price early on – then it could translate to a large number of options exercised with little or no income under AMT.

This method would require coming up with the cash, as a cashless exercise isn’t a possibility at this point. So it might be a cost that’s not realistic or worthy to take on, depending on the strike price. It’s also an even earlier bet that your company will be successful and make the options worth something for you in the future, so there’s added risk involved.

Lastly, if you pursue this, you must file what’s called an “83b election” with the IRS within 30 days of the exercise.

Now, what about the timing of the exercise within the year – exercising early in the year vs. later in the year?

Exercise Later in the Year – Using the AMT Threshold as a Ceiling

If you are using the AMT threshold as a limit for how much you plan to exercise, as discussed earlier in this post, then it makes sense to wait until later in the calendar year. That’s because this approach requires a heavy level of tax projections. So it’s helpful to have the bulk of the data making up your full tax picture, which becomes clearer at the end of the year.

Exercise Early in the Year – To Maximize Choice

This technique only provides value if your employer is a publicly traded company.

Exercising early in the calendar year (no later than April) delivers some handy flexibility as you manage next steps by allowing you to:

Decide between holding onto the shares long enough to meet the criteria for a qualifying disposition (more than 1 year), or sell during that same calendar year to avoid AMT.
[Should you choose the first of the above two options] Have more time to plan for how you’ll cover the AMT owed, if any.

For example, if you exercise on February 1st of 2025, taxes are due in April of 2026 – a little over 14 months later. In this scenario…

You could easily meet the holding requirement for long-term capital gains treatment that comes with a qualifying disposition (by selling after February 1st, 2026). Selling the shares would also raise cash that could be used to pay any AMT owed.
On the other hand, if the share price drops during the same tax year to a point where there is no longer a capital gain, it very well may make sense to sell the shares as a disqualifying disposition. In this case, there would be no AMT owed, and there wouldn’t have been a benefit to holding for 1+ year if there was no capital gain to be realized.

What if you separate from your employer?

If your employment is terminated, an important clock begins ticking immediately: your vested ISOs will convert to nonqualified stock options within 90 days. NSOs are less beneficial from a tax standpoint since the spread at exercise is always taxed at ordinary income rates.

So if your goal is to exercise after separation and you want the tax benefits of incentive stock options, it will require you to act quickly. If, on the other hand, you’re good with the tax treatment of NSOs or simply don’t want to rush into an exercise, you may still have time – often up to 10 years. To be certain, it’s best to check with your employer to confirm the details of their “post termination exercise period” (PTEP) so you know how long you have before the options expire completely.

WHEN TO SELL

Hold onto the exercised stock long enough to meet the requirements for a qualifying disposition…

Holding the shares for at least 2 years from the grant date and at least 1 year from exercise allows you to take advantage of the kinder long-term capital gains tax rate when they’re sold (compared to your higher ordinary income tax rate).

* Keep in mind that this route requires you to factor in the potential AMT impact *

This is worth considering if:

You are able to take on the added investment risk of a large position in your company’s stock.
The cash that could otherwise be generated from selling isn’t needed for any short-term goals.
You believe the stock price will increase with time (and are comfortable with the possibility of a decline in value).

You shouldn’t go for this if:

You are uncomfortable with increased investment risk. Accumulating a big position of any single stock carries heightened risk, and often more so if that stock is in a younger company.
The cash you could receive by selling will be instrumental in working toward an important goal (such as paying down high interest debt, funding a major purchase, etc.).
You doubt the future performance of the company.

Selling sooner, as a disqualifying disposition…

Sometimes, your decision is – at least partly – already made if you’ve executed a cashless exercise. Remember, if you sell to cover → a portion of the shares is immediately sold to cover taxes. Or, as part of a cashless exercise, you may elect to immediately sell all the shares in the same transaction.

Selling all the shares immediately might be necessary to help cover the cost of exercising and the taxes, but it can also be strategic if the proceeds will be put towards another meaningful financial goal. Additionally, this is a way to simply reduce the risk that comes with building up a large portion of your net worth in your employer, by then investing the proceeds in a diversified portfolio.

Finally, unloading the shares as a disqualifying disposition becomes the smart move if it’s done to avoid paying AMT on shares that no longer look like they’d yield any capital gains – like I shared above.

Here’s an important point with all this…

To some extent (*disclaimer to always check with your tax professional first*), it’s not necessarily worth getting all caught up in the mental tug-of-war over selling shares as a “qualified” or “disqualified” disposition.
Remember that there’s inherent risk involved in holding onto the shares for over a year with the hopes of paying less in taxes by way of long-term capital gains treatment. For young companies, much can happen in those 365+ days after exercising. If the price takes a hit, it very well could erase any potential tax benefit you would have otherwise received.
Money is money.
- If you’re prepared for the taxes involved, a disqualifying disposition can still be (and often is) an incredibly positive life-changing event.
  - It could be what allows you to… buy that dream home, take the trip you’ve been putting off for years, spend more time with family, and so on.
- Don’t discount the value it delivers to your life just because it isn’t the most “optimal” tax scenario.

MAKE IT HAPPEN

Given all the nuance involved, we always recommend working closely with a financial and tax professional to carefully evaluate the most appropriate path forward with incentive stock options. In doing so, they’ll be able to help you:

Know the purpose of your plan… How will this resource best support you in achieving your ideal life?
Lay out all of the options (not the ISOs, but the scenarios) side-by-side.
Understand all the possible implications… The tax impacts, investment risks/benefits, what you’re saying “yes” to and what that means you’d be saying “no” to, etc…
Create an action plan and put it into motion.

Building this plan in advance helps to minimize the emotion attached to the process and increases your chances of successfully following through.

Incentive Stock Options – Part 2: Tax Planning

Once you have a firm grasp on the fundamentals of incentive stock options, it’s time to peel back the layers on their tax implications. While they can seem needlessly complex, rest assured that ISOs do have plenty of positive attributes when it comes to their relationship with taxes. So it pays to get a handle on it.

To tackle this, we’ll examine some very specific tax-related questions:

What unique tax advantages do ISOs have?
What is the Alternative Minimum Tax?
Why do I need to worry about AMT with ISOs?
What are the different tax scenarios I could face when selling exercised ISOs?
What types of taxes are owed?
What are the possible advantages of an early exercise (if available)?
How should you cover the tax liability associated with selling stock acquired through an ISO grant?
What ISO-specific tax documents and forms should you be on the lookout for?

And if you need a refresher on all the ISO terminology, be sure to visit the bottom of our Part 1 post for a list of must-know definitions!

What unique tax advantages do ISOs have?

The headline tax benefit of incentive stock options boils down to WHEN you pay taxes and the TYPE of taxes you’ll owe.

ISOs are not taxed at all when they’re granted or when they vest. The kicker is that – unless AMT is owed – there is also no tax liability created when you exercise either. What’s more, it’s possible in some scenarios that the entire financial benefit realized through an ISO exercise and subsequent sale is taxed at the friendlier capital gains tax rate (vs. ordinary income rate).

For comparison… In the case of their equity comp cousin – Restricted Stock Units (RSUs) – the value at the time of vest is immediately counted towards your ordinary income for that year. And for the more closely related sibling – non-qualified stock options (NSOs) – you should expect to pay ordinary income tax at exercise.

What is the Alternative Minimum Tax?

The Alternative Minimum Tax (AMT) is an entirely separate tax system and calculation that exists in addition to the “regular” one most of us are accustomed to. Technically, everyone should calculate both their regular tax and AMT liability each year – then pay whichever is higher. But for the vast majority of people, the “regular” tax amount is the bigger bill.

One of the big differences between the two tax systems is that some of the credits and deductions people can take when calculating their regular tax don’t apply for AMT. A good example is the deduction for state and local taxes – it can’t be taken at all under AMT. This gets at why the system was created in the first place, as a way to try and make sure some wealthier individuals weren’t benefiting too much from credits and deductions in the regular tax framework.

The alternative minimum tax has different tax rates and standard deductions. On top of federal AMT, some states have their own version. Those lucky states are California, Colorado, Connecticut, Iowa, and Minnesota.

Why do I need to worry about AMT with ISOs?

The spread (difference between the strike price and FMV on the date of exercise) is not taxable under the normal tax system. It’s not considered income on Form 1040. Unfortunately, the spread is one of those pesky items considered income for AMT purposes and is thus factored in on Form 6251, which is used to calculate an individual’s Alternative Minimum Tax liability.

If you exercise ISOs and do NOT sell them in the same tax year, you need to check to see if this pushes you into AMT territory. If, however, you do sell the shares in the same year as exercise, the spread will not need to be added into the AMT calculation.

Bear in mind that just because you have an ISO spread for the year, it doesn’t mean you’ll owe AMT. It’s only if it pushes your AMT liability to a higher amount than your regular tax liability comes out to be.

What are the different tax scenarios I could face when selling exercised ISOs?

Moving on from exercising incentive stock options to selling the shares here… Again, this might be the first time many recipients of ISOs have to worry about paying any taxes.

It’s important to know that there is no default withholding when you sell the shares you received from an exercise. Therefore, it’s on you (plus your advisor and CPA, hopefully!) to proactively assess taxes that are due and how/when to pay them. The first step is to determine whether the sale of the ISO shares is considered a qualifying disposition or a disqualifying disposition.

Qualifying Disposition

The sale is a qualifying disposition if the stock was held for at least 1 year after exercise AND at least 2 years after the grant date. In this case, ALL proceeds are taxed at the more generous long-term capital gains rate. Your basis in the sale is whatever the strike price was. So your spread PLUS any increase in value after exercise get that preferential tax treatment.

Of course, the stock price could decline after exercise. If this were to occur, then you would still pay long-term capital gains tax on the difference between the FMV on the date of sale and the strike price.

Disqualifying Disposition

The sale is classified as a disqualifying disposition if it does not meet both of the criteria mentioned above. In this event, the tax situation could play out a couple of different ways…

No matter what, the spread is taxed at ordinary income tax rates in a disqualifying disposition. If the holding period of the stock is less than one year after exercise, any gain is also taxed at your ordinary income tax rate (short-term capital gain). In less common situations, the holding period could be more than 1 year from exercise, but less than 2 years from grant – in which case the spread is still taxed at ordinary income tax rates, but any gains would get long-term capital gains treatment.

Will I owe Social Security and Medicare taxes when selling ISOs?

Social Security and Medicare (FICA) taxes are NOT owed on ISOs when they’re sold, regardless of whether it’s a qualifying or disqualifying disposition. So you only have to worry about federal and state taxes (if you live in a state with income tax).

As described above, you may encounter ordinary income tax AND/OR capital gains taxes at the point of sale.

What are the pros/cons of an early exercise (if available)?

If your employer allows for early exercise (not all do), it is worth evaluating whether it makes sense in your situation! The ability to exercise the options before they even vest comes with potential advantages, but you should be aware of the possible downsides too.

The main reasons to consider an early exercise

You may be buying the stock when the strike price is the same as the FMV or the difference is very slim. This means that the income included in your AMT calculation is $0 or close to it – potentially helping to reduce or avoid any tax impact at exercise.
Early exercise starts the clock on your holding period, speeding up the time it takes to achieve a qualifying disposition and for applying long-term capital gains tax to the full gain.
For those at a company eligible to be classified as a qualified small business, it starts the clock on their QSBS holding period – which can lead to some rather dramatic exclusions on capital gains.
You’re especially confident that the company will perform well.

The main pitfalls of an early exercise

It’s a very early bet and the company might not make it.
It will likely be hard to dispose of your shares for some time. The company is private and it’s hard to know when a liquidity event will come around.
It requires a fully cash purchase, so you need to have the savings available to part with (unless you finance it).
Early exercise does NOT change the vesting schedule of the ISOs. So you still have to stick around to collect them. If you were to end up leaving the company before all the shares vest, the company could buy back any unvested stock that you exercised early.

Remember from Part 1 that an early exercise requires filing an 83(b) election within 30 days of the exercise.

How should you cover the tax liability associated with selling stock acquired through an ISO grant?

If ISOs work out and make you money, you’re going to have to pay taxes. But remember that there’s no default tax withholding when you sell the shares, and failing to pay enough taxes during the year could result in a penalty from the IRS. They like getting what they’re due when it’s due. To know what “enough” is, you need to calculate what’s called your safe harbor threshold, which can be figured one of two ways:

100% of last year’s total tax bill (or 110% for those with an AGI over $150k)
90% of the eventual tax bill owed for the current year (more difficult to know)

If any tax liability generated from selling ISO shares pushes your total projected tax for the year over the safe harbor amount, you need a plan to pay the tax on that income as it’s received. We recommend either paying estimated quarterly taxes or increasing the withholding on your regular paycheck by updating your W-4 to cover the tax gap.

What ISO-specific tax documents and forms should you be on the lookout for?

Come tax time, your life will be much easier if you know what paperwork to gather. There are also a couple pages in the tax return that you’ll need to be sure to complete if you sold company stock.

What you’ll need to help you prepare your taxes

W-2
- This one shouldn’t be anything new. Just know that if you had a disqualifying disposition of ISOs, the income generated from that transaction will be included in the amount in box 1.
- This is sent to you by your employer.
Form 3921
- This form contains information for any ISO exercise.
- It’s provided by your employer (or possibly a broker, or 3rd party).
Form 1099-B
- This includes details about any sale of stock and the associated capital gains/losses.
- You’ll get this form from the custodian that holds the account the stock was in.

Forms to fill out on your tax return

Form 1040
- This should look familiar. It’s the first page of the return and reports your income for the year.
Schedule D
- This page reports the total gains and/or losses from the sale of stock during the year.
Form 8949
- This is used to list out the specifics of each stock sale.

Wrapping It Up

Don’t let the tax intricacies of ISOs keep you from taking advantage of them in the most optimal way! There is potentially a lot to be gained, but it starts with taking the time to understand all the rules. Lastly, stay tuned for the final post in this 3-part ISO series, which will revolve around decision-making strategies and tie it all together.

Still have questions? Keep up with our latest insights by subscribing to our monthly newsletter. Or reach out!

Eddy Jurgielewicz, CFP® is a Partner and Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Alternative Minimum Tax Equity Compensation ISOs Taxes

Incentive Stock Options – Part 1: What Are They?

Stock options are a major player when it comes to equity compensation, especially for those who work in the tech startup space. Not to be confused with their cousin, restricted stock units, they come in two flavors: nonqualified stock options (NQSOs) and incentive stock options (ISOs). We’ll focus on ISOs here!

Quick Tip!

The world of ISOs is filled with lots of fun terminology. To help make things easier, I’ve included a list of essential vocabulary at the bottom of this post.

I suggest glancing at that first! If you’ve only just been handed your first ISO award, the vocabulary alone will be well worth reviewing.

As far as milestones go, ISO grants and the cascade of decisions that need to be made after create quite a series of inflection points in your financial journey. Beyond helping you speak the language, we’ll take a comprehensive approach to understanding incentive stock options in the context of your life.

In an attempt to do it justice, I’m going to break up the topic into a series of 3 separate posts with their own general theme:

In this post, we’ll explore exactly what ISOs are
In Part 2, we’ll get into the various tax implications to anticipate and prepare for
And in Part 3, we’ll cover a framework for decision-making – how to actually position ISOs as a tool to support your goals

So stay tuned for the follow-up pieces!

With that, let’s jump into the “what” of incentive stock options…

Overview

Put simply, an “incentive stock option” is an agreement between you and your employer that gives you the right to buy stock in your company at a pre-determined price, as long as certain conditions are met. They are commonly offered as part of an overall compensation package at early-stage, private startups (alternatively, RSUs are more typically offered at public companies). Note that options are merely that… an option. It is your choice to act on them, not a requirement.

ISO ≠ a stock

ISO ≠ an obligation

The greatest incentive stock option success stories have produced millionaires overnight thanks to the unique ability of ISOs (in a best case scenario) to amplify and speed up the most fundamental rule of investing: buy very low → sell for a lot higher.

Of course, sound planning (and, to be fair, in plenty of cases, a healthy dose of old-fashioned luck) goes a long way in leading to such positive results.

The Life Stages of an Incentive Stock Option

To help further understand how this type of equity compensation can generate such wealth, let’s lay out the basic mechanics of ISOs.

Grant

ISOs are given to employees in the form of a “grant” or award. This usually happens at the point of hire and/or later on when compensation is adjusted, or as part of a promotion. These grants are for batches of ISOs. For example, a grant might be in the form of 100 ISOs – which means that you receive the option to purchase up to 100 shares of your company at a future point.

Vesting

Enter the first component of the “incentive”. Your employer has said, “Here’s this potentially awesome benefit, but… you’ll need to stick around for a while if you want to actually reap the reward.”

You won’t be able to do anything with your ISOs right away (*unless your employer allows for early exercise – more on this later*). Instead, you’ll have to wait patiently for the ISOs to vest over time. Only after they vest are you then able to do “the something” that creates any real value for you. You’re likely to see a schedule that starts with a “cliff”. During this time, no ISOs will vest at all. But once that cliff ends, they’ll begin to vest according to the established schedule. For example, if the schedule is quarterly for 4 years with a 1-year cliff – the first set of options will vest 12 months from the date of grant and then each quarter thereafter for the next 3 years.

Exercise

We’ve arrived at another aspect of the “incentive”. As soon as the ISOs vest, you have the opportunity to convert them into shares of company stock. Put another way, you can now choose to exercise your option to buy the stock.

The perk is this: You get to purchase the underlying stock for the stated “strike price”, which is specified at the time of grant. The idea – and hope – is that the strike price (for which you buy the stock) is LESS THAN the current fair market value (amount you could immediately sell the stock for). If that’s the case, then you are able to produce tangible cash value from the incentive stock options if you exercise and sell them right away.

Alternatively, you may choose to exercise the ISOs and then hold onto the shares, hoping for even more growth in the stock price before eventually selling (plus a long enough holding period to create a “qualified disposition” – more below). Either way, exercising an option leads to ownership of the stock. Once you own the stock, it is then yours to sell when you like.

In terms of ISOs, this is the first big decision you’ll have to make. Note that you do NOT have to exercise your options at the moment of vesting. You can decide to do so later on, or not at all. Additionally, it’s up to you how many ISOs you exercise – it’s not an all-or-nothing deal.

Be aware that, if you don’t exercise, the options have an expiration date. In most cases, they will expire after 10 years.

Sell

Upon taking ownership of the underlying stock, the next major question becomes… When do you sell? Of course, you don’t derive any true value from a stock until it is sold for more money than you bought it for.

Let’s take a look at an example that illustrates how this could play out…

Virginia works for a hot new tech startup called Sovereign AI.

After Virginia’s grant, Sovereign AI experienced a liquidity event and went public. As a result, the stock is currently trading on the open market at $25 per share.

Let’s say today is February 2nd, 2025, and Virginia has not done anything with her ISOs yet.

If she were to exercise all the shares that have vested so far (200), she would pay a total of $100 (200 x 0.50). She could then sell them immediately for $25/share. Doing so would result in proceeds of $4,900 ([200 x 25] – 100), before taxes.

* We have not accounted for any taxes in this example *

Admittedly, this is a pretty straightforward example. Nonetheless, it shows us the basic lifecycle of an ISO…

Grant → Vest → Exercise → Sell

Oftentimes, an employee will see their options vest before a liquidity event occurs. While the value of their private company stock at the time of vest may be higher than the strike price, it might not be by much. Still, it can be wise to exercise even at that point and hold onto the stock until a later date. Or maybe there’s a scenario where the current value of the company stock is less than the strike price – meaning the options are worthless. If that’s the case, the best thing could be to hold off on exercising until the value hopefully goes back up.

What to Expect if You Leave Your Employer

There are some important things to be aware of in the event your employment comes to an end, whether by choice or otherwise. It all comes down to the life stage of the stock option…

Those unvested ISOs...

They go away.

Vested ISOs that you haven’t yet exercised...

You can still exercise after leaving, but only up to a certain point. Your company will give you a set window within which you can exercise any remaining vested options before they expire – oftentimes this is as short as 90 days. If you have more time, know that the options will lose their more tax-beneficial ISO status after 3 months and automatically convert to nonqualified stock options.

Options that you’ve already exercised...

That’s now stock you own outright, so nothing changes there.

If you’re planning a departure from your current employer, be sure to factor in the ISO-related decisions and the associated timeline that will come with the transition.

A Couple of Special Rules

Early Exercise

Some companies will allow for employees to exercise their options early – even before the vest date. This can be a wonderful opportunity to consider since it creates additional tax benefits, but it does carry additional risk. It also requires filing paperwork with the IRS, called an 83(b) election, within 30 days of exercising.

$100k Limit

While many recipients of option grants won’t have to worry about this, it is necessary to know the total annual value of your ISOs, based on the fair market value of the stock at the time of grant. The IRS doesn’t want people benefiting too much from ISOs (classic), so they have put this limit in place. Simply put… If the value of the shares scheduled to vest in a given calendar year, multiplied by the FMV of the company stock at the time of grant, is greater than $100,000 → any options beyond that threshold are treated as nonqualified stock options instead of ISOs.

Tax Essentials

Ok ok… I know I said taxes will be in a separate post, but some elements are crucial to know from the jump. I’ll expand on these and include more in the follow-up piece. After all, what REALLY sets “incentive” stock options apart from their nonqualified counterpart comes down to the tax treatment.

First off, let’s address when there is a taxable event…

You can easily see how taxes may not come into play at all until it’s time to sell the shares.

Exercising and Taxes

For many people, there will be no taxes owed when they exercise ISOs – creating an impactful tax advantage over nonqualified stock options. However, for some, exercising could mean paying Alternative Minimum Tax – thus making it critical for everyone to be mindful of what this is.

AMT is a totally separate tax “system” (Form 6251) than the one most of us are accustomed to (Form 1040). In other words, it is an entirely different method for calculating tax liability for the year. Certain conditions require someone to figure out their tax liability under “ordinary” income tax rules and then run the calculation for the alternative minimum tax. They then have to pay whichever amount is higher for that year. If someone exercises ISOs and does NOT sell them within the same year – this is a condition that requires them to run the AMT calculation. More specifically, the difference between the strike price and fair market value of the stock at exercise (spread) is included as income when figuring AMT liability.

Here’s a helpful AMT calculator.

Tax Treatment at the Time of Sale

To recap where we are: Many people will pay zero taxes on ISOs at the time of grant, vest, and exercise (assuming AMT doesn’t apply). That means that taxes often don’t even enter the equation until the stock is eventually sold, at which point we will assess the impact in one of two ways: “Qualifying Disposition” or “Disqualifying Disposition”.

Qualifying Disposition...

A qualifying disposition means that the shares were held at least two years beyond the date the ISOs were granted AND at least one year past the exercise date. If these conditions are met, then the difference between the sale price and strike price (amount you paid at exercise) will be taxed at the more favorable long-term capital gains rates.

Disqualifying Disposition...

If you fall short of those two conditions, then the sale is considered a disqualifying disposition. In this situation, the tax treatment is less beneficial. The difference between the strike price and the FMV on the date of exercise is taxed at ordinary income rates. Then, the difference between the FMV at exercise and the eventual sale price is taxed at either short-term capital gains (ordinary income) or long-term capital gains rates – depending on how long the shares were held after exercise (Did you hold for one year of less? STCG… Did you hold for more than one year? LTCG).

Wrapping It Up

If you are awarded incentive stock options as part of your compensation package, start with learning the lingo (below!). Then, make sure you understand the life stages of an ISO and the timing of each. This will create a powerful foundation from which you can start building out your strategy. To round it out, familiarize yourself with the tax implications of each possible decision and consider how a given scenario can support your personal financial goals – see Part 2 and 3!

ISO Vocabulary

Incentive Stock option

An option or right to purchase stock in your company at a pre-determined price.

Grant

The award of a set of incentive stock options. A “grant” is typically given to an employee at hire, and/or as comp is adjusted up based on positive performance. Grants usually come in “sets” of ISOs (for example, 100 ISOs).

Exercise

The act of executing your right to buy shares in your company under the rules of your incentive stock option plan. This is the point at which you take ownership of the stock.

Vest

The moment at which you can first exercise your options. ISOs come with a “vesting schedule” – a period of time you must wait before you can exercise. You do NOT have to exercise as soon as the options vest. It is your choice whether or not you exercise and when. However, they will expire at some point, typically after 10 years.

Cliff

Sometimes included at the front end of a vesting schedule. This is a duration of time – immediately after a grant is awarded – during which no options vest. Once this period has passed, the options will begin to vest according to the terms of the grant. A common cliff is one year.

Fair Market Value

The underlying value of a stock. For publicly-traded companies, this is simply the stock price at any given point of time.

409A Valuation

In the context of ISOs, this is the current assessed fair market value of a private company’s stock. With private companies, you can’t simply google the stock symbol to find the price. Instead, you must check with your employer to learn the current 409A.

Strike Price

Also referred to as the “exercise price”. This is the “pre-determined” price at which an employee is able to purchase the stock in their company – under the rules of the incentive stock option grant. The hope is that – at the time of exercise – the strike price is lower than the current fair market value of the stock, meaning there is immediate value in taking advantage of the option to exercise.

Spread

Also referred to as the “bargain element”. This is the difference between the strike price and the fair market value of the company stock on the day of exercise.

Holding Period

The amount of time that passes from the point of exercising (purchasing) your company stock until you sell the stock. In other words, this refers to how long you own (or hold) the stock.

Qualifying Disposition

Refers to the process of selling your company stock (purchased through an incentive stock option plan) that receives more favorable tax treatment on the bargain element at sale. In order to meet the required thresholds, you must hold the stock up until at least 2 years from the date of grant and at least 1 year from the date of exercise. If these thresholds are met (and assuming there is a gain), then any sale from that point forward qualifies for “long-term capital gains” tax treatment (a lower tax rate than ordinary income tax rates). This preferential tax rate is applied to the entire gain – the value between the exercise price and sale price.

Disqualifying Disposition

Refers to the sale of company stock (acquired through an incentive stock option plan) that does NOT receive preferential tax treatment, at long-term capital gains rates, on the bargain element. In this case, the stock is sold before meeting the thresholds outlined above for a “qualifying” disposition. Therefore, the spread (difference between the exercise price and FMV on the date of exercise) is taxed at the individual’s ordinary income tax rate. Any additional gain beyond the spread will still be taxed based on the holding period from exercise. If the stock was sold in one year or less, those additional gains are also taxed at ordinary income tax rates. If the stock was sold more than one year after exercise, then just those additional gains will be taxed at long-term capital gains rates.

In the Money

Means that your incentive stock option is worth something! Put another way, it’s the scenario when your exercise price is lower than the current FMV – meaning that if you were to exercise and then sell right away, you’d make money.

Out of the Money

Means that your incentive stock option is worthless… In this scenario, your exercise price is higher than the current FMV – meaning if you were to exercise, you would be paying more for the stock than it’s actually worth. Subsequently selling it would lose you money.

Alternative Minimum Tax

A totally separate tax “system” (Form 6251) than the one most of us are accustomed to (Form 1040). In other words, it is an entirely different method for calculating tax liability for the year. There are certain conditions that require someone to figure out their tax liability under “ordinary” income tax rules and then run the calculation for the alternative minimum tax. They then have to pay whichever amount is higher for that year. If someone exercises ISOs and does NOT sell them within the same year – this is a condition that requires them to run the AMT calculation.

83(b) Election

Allows for early exercise of options, even before the set vesting schedule, with the potential for more beneficial tax implications. This election simply locks in the “spread” at the date of the early exercise. The hope is that this results in a lower spread, thus reducing or eliminating AMT liability, and starts the holding period clock earlier than would otherwise be possible. The election must be filed with the IRS within 30 days of exercise.

Liquidity Event

A major transition event for a company that creates significant potential value for an employee holding company stock or incentive stock options. Common examples include an Initial Public Offering (IPO) or acquisition. This event creates an opportunity for the stockholder to easily sell their stock for greater value than what it was purchased for – or for an option holder to simultaneously exercise the options and sell the underlying stock for more than the strike price.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Equity Compensation investing

RSUs: A Guide to Decision-Making and Taxes

RSUs: A Guide to Decision-Making & Taxes

RSUs are an increasingly familiar form of equity compensation these days. When handled well, they can be a true boon to your financial plan – expediting progress toward major goals and having the potential to change your life for the better.

In our work, we’ve had the fortune of seeing this play out in a variety of scenarios, allowing clients to:

Quickly pay down debts
Pay for an international vacation
Max out tax-advantaged retirement accounts
Top off the down payment for that dream home
Purchase an engagement ring and pay for the wedding
… and more!

But to experience the optimal impact with RSUs, a few things are absolutely necessary. You need to:

Understand what they are
Have a framework for deciding what you’ll do with them
Proactively prepare for the tax implications

And that’s exactly what we’ll cover here. So top off that cup of coffee and strap in!

PART 1: WHAT ARE RSUs?

An Overview

Restricted Stock Units (RSUs) are batches of stock in the company you work for. They are given (“granted” or “awarded”) to you over an established period of time, before which they are… restricted! RSUs are typically found at public companies and are ultimately a form of incentive compensation. Instead of the employer saying, “We’ll pay you more cash via your paycheck,” they’re saying, “We’ll give you some shares of our company stock and then you decide what you want to do with them”.

Vesting

RSUs create a nice carrot at the end of a stick in that you have to stay with your employer long enough if you want to realize the benefit. Upon being awarded a grant, the shares aren’t yours right then and there – bummer. Rather, they’re restricted up until a point at which “vesting” begins. Vesting refers to when you will actually start receiving ownership of the stock units (we’ll look at a sample schedule shortly).

In the event you do leave the company or are terminated, you typically won’t receive the remaining number of unvested RSUs. But you will keep the shares that have already vested before that time.

Review the paperwork

If you receive RSUs as equity compensation, then all the nuts and bolts of the award will be spelled out in a grant letter – which is provided by HR. This will provide the specifics on the number of shares to be awarded, the vesting schedule, what happens to unvested shares upon departure from the company, plus tons of fun jargon and legalese. It’s critically important to review this information so that you can be crystal clear on what to expect.

A Vesting Schedule Example

Let’s say Darrow is awarded a grant of 10,000 shares in his company, The Rising Industries, on January 1st, 2025. The vesting schedule is over 4 years with a 1-year cliff, and shares will then vest quarterly after 1 year. This would look as follows:

~ Jargon Break ~

A “cliff” is very common and means the vesting date for the first chunk of shares is delayed until after a specified period of time, typically 1 year. Then, the remaining shares will often vest more frequently from there (such as monthly or quarterly). In Darrow’s case above, no shares were vested at all until after a full year.

PART 2: DECISION-MAKING

Alright, now that you understand what RSUs are, it’s time to think about how you’re going to utilize this resource… Once they vest, it’s game time, and there are 2 things you can do upon gaining ownership of the company stock. Ideally, there’s already a strategy in place before this happens to help them support your goals as effectively and seamlessly as possible.

A Mental Framework for RSUs

It’s perfectly normal for people to get analysis paralysis with RSUs and hesitate when the time comes for a decision. To get the gears turning in the right direction and guide your thought process, I suggest asking yourself the question:

“What would I do if my employer gave me a cash bonus for this amount (the dollar value of the vesting shares)?”…

Your 2 Options at Vest

Hold onto the shares...

Once the stock vests, you can choose to keep them as is – maintain the shares in your company stock. Doing this is essentially saying, “If I were given this value in a lump sum of cash, I’d turn around and use the entire check to buy stock in my company.”
It’s worth emphasizing here that inaction with RSUs is still an active decision in regards to your financial plan.
Even if you plan to sell the shares at a later date, you’ve now taken the bet on your company and will ride the movement of the stock price for better or worse.

Sell the shares right away...

Alternatively, you could sell the shares at the earliest opportunity. Going this route opens up the conversation for using that cash for some other purpose within your greater financial plan – be it adding funds to savings, investing those dollars in a diversified portfolio, paying down debt, etc.

Again, RSUs are simply a type of compensation in the form of equity. The employer is committing to paying you with company stock in place of cash. As such, it should be thought about in the same vein – as if you were receiving a cash bonus for the amount of vesting shares. This mindset can simplify the process of evaluating what the next steps would be after receiving shares.

I find that very few people are quick to say they’d want to invest all that money back into their company stock. Instead, most prefer to find another – more practical – use for those resources.

You Should Definitely Consider Selling the Shares at Vest if ANY of the Following Apply:

You…

Have high-interest debt balances
Are still short of an adequate Emergency Fund target balance
Have major unfunded short-term cash needs within the next 1-3 years (think: house down payment or repair, car replacement, etc.)
Could use the income to contribute to tax-advantaged retirement accounts that your normal cash flow otherwise wouldn’t allow for
Are not comfortable with higher levels of risk in your investment portfolio
Are still working to get on track with your long-term financial independence goal
Would miss that money if it went to $0
Already have sizeable exposure to your company stock through other means

It May Be OK to Consider Holding Onto the Shares at Vest if All of the following apply:

You…

Have adequate cash buckets in place
Are already on schedule for meeting all your short and long-term financial goals
Are comfortable with, and have capacity for higher levels of investment risk
Wouldn’t miss the money if the share price went to $0
Understand and are ok with the potential for paying income tax on a value you may never realize

A mix of the two options is possible as well… It doesn’t have to be all or nothing. If you understand the pros/cons and how the decision will affect your specific situation, you may choose to sell some of the shares and hold onto a portion, as long as you still check all of the boxes in the second list above.

The Risk of Accumulating Too Much Company Stock

Concentration is a helpful tactic when your spouse is giving you a list of things to pick up at the store. But concentration can be quite risky when it comes to your investment portfolio.

Without paying much attention, you could accidentally amass a rather large amount of stock in your company thanks to RSUs. Some questions worth asking yourself if you realize this has happened are:

Are you willing to tie your list of future financial goals directly to the success of your company stock price?
What would be the impact on your plans if the value of your shares were to suddenly go to zero?

If you find yourself in a position where you’ve already vested a lot of RSUs over the years and they’re still sitting there, it is worth reflecting on your tolerance and capacity for investment risk – then putting together a tax-mindful strategy to diversify out of your highly concentrated company stock over time.

Trading and Blackout Windows

Many companies have certain times of the year when you CAN and CANNOT sell your company stock, due to rules around insider trading. It’s not uncommon for the vesting of RSUs to coincide with a blackout window, during which you’re prohibited from selling any shares. If this happens to be the case for you and your plan is to sell the RSUs at vest, it requires an extra step.

You should take note of when your trading window will open back up and mark it on your calendar so that you’ll remember to go back in and sell at the earliest permissible time. Forgetting to do this could result in accidentally holding the shares longer than you may have wanted.

Don’t Forget About What Comes Next!

If you do sell the shares at vest, there will still be planning to follow! That cash will need to be deployed into your financial framework… Make sure you take the next step to direct the proceeds into their new home within your plan.

PART 3: TAXES

Now for everyone’s favorite part! No matter what you do (or don’t do) with the RSUs after they vest, there are going to be tax impacts.

Income Tax Treatment of RSUs

The main thing to know is that the market value for a set of RSUs (# of shares x stock price) is added to your annual income on the day that they vest. This means that the value of the vesting shares is taxed at ordinary federal and state income tax rates right away – even if the shares aren’t immediately sold. Applicable Social Security, Medicare, and Medicare surcharge taxes are owed as well. To drive it home… this is the case whether you hold onto the shares or sell them.

Withholding Rates

It is normal for employers to withhold income taxes owed on RSUs for you. They do this by selling some of the shares on your behalf upon vesting, using the proceeds to pay the tax. There are default rates (for “supplemental income”) that are used to determine how much is withheld, as follows:

Federal...

Taxes are withheld at a rate of 22%. If you earn over $1 million, the default rate is 37%.

States...

Have their own set flat rates for supplemental income that are applied to RSUs. For example, California’s rate is 10.23% and some states – like Louisiana – have no supplemental withholding rate even though there is a state income tax.

FICA...

Tax rates are the same as your other income.

This gets “fun” because your actual income tax rate almost certainly differs from the default withholding rate, meaning we come across plenty of situations where taxes are some combination of over- and/or under-withheld for federal and/or state. Behind deciding whether to hold or sell RSUs at vest, this is one of the most common things that trips up clients out there. The withholding discrepancy goes unnoticed, and then April delivers a big surprise…

In all cases, proactive tax planning throughout the year comes in clutch to manage this and avoid those unexpected shocks to the bank account courtesy of the IRS and your home state.

Filling the Tax Gap

If we project an under-withholding because the default supplemental rate is insufficient, we work closely with our clients on a plan to cover the difference. This can be done in one of a handful of ways:

Ask your payroll department if they can change the withholding rate specifically on your RSUs to a custom percentage (not all employers will facilitate this)
Adjust your W-4 to have more money withheld from your regular paychecks
Pay estimated quarterly taxes
Set funds aside in a dedicated high-yield savings account to pay the lump sum tax bill in April (as long as we’re not worried about falling short of safe harbor thresholds)

If you’re going to “try this at home”, the IRS has a tax withholding estimator you can use to get an idea of what your federal situation may look like. It will finish by giving you suggested guidance on updating your W-4.

Capital Gains Tax

But wait, there’s more!

At the time that RSUs vest – if the shares are not all immediately sold – it starts the clock and sets the cost basis for any shares that may be sold at a later date. From this point forward, the vested RSU is treated like any other stock that’s purchased under usual circumstances, meaning that any growth or loss beyond that point will receive the appropriate long-term/short-term capital gain/loss treatment.

~ Jargon Break ~

“Cost Basis” is what the IRS considers the amount you paid for an asset (in this case, the stock). They need to know this because if you later sell an asset, you will be taxed on any growth you realize. When you eventually sell the stock, the “gain” or “loss” is determined relative to that “cost basis”. In the case of RSUs, you are NOT purchasing the stock. Nonetheless, the IRS will use the value of the company stock on the day it vests as the “cost basis” to assess any taxes on growth from that point if you choose to hold onto it (or to record any losses).

Key takeaway: There is no tax benefit to holding onto RSUs after they vest.

Another Common Mistake – Misreporting Cost Basis on Your Tax Return

In addition to withholding snafus, the most frequent tax-related mistake we see with RSUs is the incorrect reporting of cost basis on tax returns. Let’s break down what I mean here by bringing back our friend, Darrow, of The Rising Industries…

Let’s say that Darrow vested $10,000 worth of RSUs this year and immediately sold them all. As we now know, his “cost basis” would be $10,000 → the value of his shares in The Rising Industries at the time of vest.

Regarding his taxes on these RSUs...

$10,000 was added to his “ordinary income” for the year, meaning he’ll pay regular federal and state income taxes on that amount just like the rest of his earnings.
Because he sold them all right away, there are no capital gains/losses to factor in.

Where this gets tricky...

It is up to YOU, the taxpayer, to properly report the “cost basis” of the vested RSUs on your tax return.
The custodian (investment company that facilitates your RSUs) will provide you a tax form called a 1099-B, which gives information on stock sales you made. And because they aim to make your life difficult, the cost basis on this document will probably show as $0…Which is incorrect!
Now, if you were to write $0 as the cost basis for your RSUs when completing the tax return, this would create a DOUBLE tax situation → you would pay ordinary income tax on the $10,000 that vested PLUS capital gains taxes on the difference between $0 (supposed cost basis) and $10,000 (amount you sold them for).

So, how do you fix this...?

Your custodian (E*Trade, Fidelity, etc.) will also make a document called a “Supplemental Information” sheet available. MAKE SURE TO GET THIS.
This document will list out the correct cost basis information for your RSUs. You’ll need to use this to properly report it on your tax return to avoid the potential double taxation.

If you made it to this point, I applaud you. That was a doozy… But hopefully you’re leaving with more than you started with!

As with all types of equity compensation, the right understanding and coordination can make RSUs a game-changer for you. Ensure you have a working strategy in place to optimize them for your unique goals!

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Equity Compensation RSUs Tax Planning