Know Your Grants
Four Types, Four Tax Treatments
Each type of equity compensation has fundamentally different tax implications. Treating them the same is one of the most expensive mistakes employees make.
- Taxed as ordinary income when they vest — no choice in timing
- Withholding is often insufficient; many employees owe at tax time
- Diversification strategy needed immediately upon vesting
- Consider selling at vest to avoid concentration risk
- No regular income tax at exercise — but AMT may apply
- Must hold 2 years from grant + 1 year from exercise for LTCG treatment
- Disqualifying disposition converts to ordinary income
- Exercise timing strategy is critical for tax optimization
- Taxed as ordinary income on the spread at exercise
- No AMT risk, but higher immediate tax burden
- Subject to payroll taxes (Social Security + Medicare)
- Exercise-and-sell vs. exercise-and-hold requires analysis
- Typically 15% discount on company stock — often the best guaranteed return available
- Qualifying vs. disqualifying dispositions affect tax treatment
- Holding period rules: 2 years from offering + 1 year from purchase
- Selling immediately at vest locks in the discount with minimal risk
Hidden Dangers of Equity Comp
These risks have cost employees millions. Understanding them before they materialize is the entire point of working with a specialist.
The AMT Trap
HIGH RISKExercising ISOs can trigger Alternative Minimum Tax — a parallel tax system that catches many employees off guard. The 'bargain element' (market price minus exercise price) is added to AMT income. In volatile markets, you could owe AMT on gains that later evaporate.
Concentration Risk
CRITICALIf your salary, bonus, and equity all come from the same company, a single stock decline hits your income, your net worth, and your unvested compensation simultaneously. The general rule: no single stock should exceed 10–15% of your liquid net worth.
Expiration & Forfeiture
MODERATEUnvested options and RSUs are forfeited if you leave the company. Vested options typically expire 90 days after departure. Post-termination exercise windows are a critical factor in job change decisions.
Tax Timing Mismatch
HIGH RISKYou may owe taxes on stock that you haven't sold — and can't sell due to lockup periods. IPO employees frequently face six-figure tax bills on illiquid shares. Pre-IPO planning with 83(b) elections can help mitigate this.
Smart Moves
Strategies That Protect & Optimize
The right advisor will implement a combination of these strategies based on your specific grant types, vesting schedule, and financial goals.
10b5-1 Trading Plans
Pre-scheduled selling plans that remove emotion and insider trading concerns from your diversification strategy.
Staged Diversification
Selling a fixed percentage at each vesting event to gradually reduce concentration while maintaining upside exposure.
Hedging Strategies
Protective puts, collars, and exchange funds for concentrated positions — particularly useful during lockup periods.
Tax-Loss Harvesting
Strategically realizing losses on other positions to offset gains from equity compensation events.
Charitable Giving
Donating appreciated stock directly to charity or a Donor-Advised Fund avoids capital gains entirely while generating a deduction.
83(b) Elections
For early-stage company grants — paying tax on the current (low) value rather than the future (potentially much higher) value at vesting.
Your Equity Deserves a Specialist
General financial advisors rarely understand the nuances of RSUs, ISOs, NSOs, and ESPPs. We'll match you with an advisor who specializes in equity compensation planning — so you keep more of what you've earned.