By |Published On: Mar 27, 2023|Categories: Alternative Minimum Tax, Financial Planning, ISOs, NSOs, RSUs|

There are a lot of tax complexities with stock ownership – income taxes, withholding taxes, and of course the dreaded Alternative Minimum Tax (AMT).

During this tax season are you scrambling to understand the tax implications of your stock decisions from the previous year? Here’s a brief and quick refresher for you on stock compensation and taxes.

Stock Compensation and Taxes

RSUs are taxed upon vesting. Once the RSUs vest, you own the shares, and their cost basis is the market price on the vesting date. You pay ordinary income taxes if held for one year or less and long term capital gains if held longer than one year. It is best to develop a strategy for your RSU shares before they vest to minimize your overall tax bill and enjoy more of your hard earned money.

Stock option taxation depends on the types of options you own, NSOs or ISOs. You pay no taxes at vesting for either type of option. At exercise you pay ordinary income tax on NSOs. After exercise, if you hold the shares for less than one year, the taxes are again ordinary income. If held longer than one year, the taxes are long term capital gains.

ISOs are a little tricky. If you sell them at least 1 year from exercise date and 2 years from grant date you will pay long term capital gains rates. Furthermore, you may have to pay the AMT when you exercise the options. This depends on your overall financial and tax situation. If you are confused, that’s ok. I am here to help.

Get What You Want

Keep in mind that there is nothing wrong if you don’t understand the tax implications of stock ownership. Stock ownership is a form of money and money is one the most loaded topics out there. Usually, nobody teaches you anything about money because you’re not supposed to talk about it. It’s inappropriate, and not so classy.

But what if you can heal this forbidden and averted relationship with money? Then you can transform your life and live the life you’ve always wanted. Don’t settle for what you think you can get. Take advantage of your stock compensation.

How do you do this? You have to agree with yourself to get really, really uncomfortable, over and over again. You have to do things you’ve never done before. Your stomach is going to turn and it’s going to feel messy. But when you look back in 6 months or a year, you will tell yourself, that was easy. What’s next?

If you’d like to take the next step and get a little uncomfortable, you can set up a free consultation.