It’s very important that you understand tax implications of exercising stock. Non-quals, ISOs and RSUs are all treated differently by the IRS. Knowing what type of stock you have and its qualifying position will help to minimize your tax bill after a sale. Check out a Bordeaux case study where we helped a client avoid a $700k mistake.
Many factors come into play when determining how and when to exercise and sell your options: your need for liquidity, diversification, and tax implications. To minimize taxes, you need to build out a tax projection. This will help you understand if / when you are subject to Alternative Minimum Tax (AMT). AMT can be avoided, but only with proper planning. Check out this sample tax projection.
If you are fortunate enough to have purchased QSBS, you may be subject to significant capital gains. Fortunately, there are ways to extend the exemption of those gains beyond $10M. Ensure that you are working with a knowledgeable advisor who can walk you through this.
Once you’ve liquidated some of your stock holdings, it’s wise to build a diversified portfolio. This can be include a variety of other asset categories, including alternative investments, private equity, venture capital, and institutional real estate. Make sure your advisor can provide you access to investment opportunities outside of stock ownership.
Questions about equity compensation are complex; assistance from a skilled wealth advisor is of the utmost importance.
Bordeaux’s highly credentialed team of CPAs, CFP®s, CFAs and estate professionals provides the gold standard of wealth management. We have extensive experience optimizing equity compensation for clients.
