Equity Compensation Management
Evaluating the potential value of an equity package is a critical part of accepting or negotiating a job offer. There are actions you can take now that will significantly affect your finances during a job transfer, IPO, or any other equity event.
What you need to do
Key steps to consider, what to watch out for, and ways advisors can ensure you take the right steps both now and in later years.
Collect Full Information
Find out the full number of shares outstanding, any upcoming dilution of shares (funding rounds, new board members), and your own history with equity at other companies.
File Tax Forms
Depending on the type of equity and what’s allowed in your equity grant, you may want to do an early exercise and file certain tax forms now in order to save on taxes in case of a future liquidity event.
Calculate Potential Scenarios
Based on your strike price and current and future Fair Market Values (FMVs), you should have in mind several scenarios and cost/tax outcomes for both short- and long-term budgeting for tax payments, which can be substantial.
- Miscalculating value of equity
- Missing tax opportunities
- Having too much concentrated risk in your portfolio
Certified Public Accountant (CPA)
Tax Traps and Advantages
File the right paperwork by their respective deadlines to take in order to maximize the value of your equity and minimize your tax bill.
Reconcile with previous equity grants, and plan to file taxes strategically over the next multiple years, if necessary.
Trust & Estate Attorney
Founders and Investors
Consult an attorney if your equity makes up a large percentage of ownership in the company and/or if you anticipate there may be significant long-term appreciation.
Transferring to a Trust
Transfer your company stock to a trust while the market value is lower to potentially significantly reduce any gift transfer taxes and/or reduce your tax liability now and later if donated to a charitable trust.
Plan a diversification strategy to ensure that your equity compensation is not exposing you to investment risk.
Know exactly how much you’ll have to pay and potentially gain in several equity scenarios.