Receiving & Managing Equity Compensation

Equity grants can be a lucrative part of your compensation package. However, decisions you make around them can have significant tax and financial implications.

  1. Potential Direct Financial Impact

    • A significant outlay of cash may be required to exercise any stock options as they vest depending on the size of your grant.
    • Potential tax liability from exercising certain types of stock options.
    • Complexity and costs associated with triggering the Alternative Minimum Tax (AMT) through stock exercises.
    • Potential for restricted shares or exercised options to qualify for QSBS tax treatment based on structure and capitalization of the company.
    • Incremental tax obligation if exercising, vesting or selling equity pushes you into the next marginal tax bracket.
    • Possibility that your equity compensation could decline in value or even become worthless.
  2. Potential Secondary Impacts

    • Incremental tax obligation if exercising, vesting or selling equity pushes you into the next marginal tax bracket.
    • Possibility that your equity compensation could decline in value or even become worthless.
  3. Self Completion/Execution Risks

    • Exercising too many shares and not having a plan in place to pay the taxes due on an option exercise can create an income tax liability that you may not be prepared to pay.
    • On the contrary, not exercising your shares as they vest when the market value is lower may result in paying more taxes on the proceeds, and may not qualify for preferential long-term capital gains treatment depending on the holding period.
    • Being heavily invested in your company stock can expose you to a tremendous amount of volatility and risk, especially if it is a privately held company without a liquid market to resell your equity in the event you need to raise cash.
    • Missing out on significant tax savings like the opportunity to make a special 83(b) election for AMT purposes within 30 days of an early exercise. Doing so allows you to you report the income on the spread before your options vest when the market price is low and changes the gain on all your options from ordinary income to a long-term capital gains treatment.
  4. Situations Where Expertise Adds the Most Value

    • Tax Adviser
      Given that there can be some major tax traps and potential tax advantages to be aware of, working with a tax adviser to put a strategy in place to maximize the value of your equity compensation is worthwhile for most.
    • Legal Adviser
      Consulting a trust and estate attorney can be advantageous 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 your equity stake to a trust while the market value is lower could significantly reduce any gift transfer taxes and/or reduce your tax liability now and later if donated to a charitable trust.
    • Financial Adviser
      Working with a financial professional to project various financial scenarios with your equity and gradually diversify away from a concentrated stock holding may help reduce your investment risk and minimize the capital gains taxes by spreading the realized gains out over several tax years. Additionally, a financial adviser may be able to help you determine the role your equity compensation may play in your overall financial plan.

Harness the full potential of your wealth

We blend deep expertise, sophisticated technology, and personal service to identify strategies that unlock value and pair you with advisers that turn those strategies into reality.

GET STARTED Learn More

Working with us

We’ll start by working with you to create a personal balance sheet and current financial outlook. From there, we present a curated list of Financial Advisers, CPAs, and Trust & Estate Attorneys from which you can choose.

GET STARTED