Yesterday I saw a photo of Eric Clapton enjoying a coffee in a classic New York diner. It’s a place with laminated menus, the smell of comforting food, and a “Please Pay Here” sign that’s been hanging since the JFK administration. A few days later, I realized I had the same photo – different day, same warm clothes, same relaxed look. And it hit me – your equity doesn’t care if you’re a rockstar or a regular person.
The IRS Loves Revenue
The IRS has the same rules for everyone — founders, engineers, and legendary musicians. Remember that the IRS stands for Internal Revenue Service. The most important letter in their name is the “R.” Their job is to generate as much revenue as they can.
If you make a mistake or did something unplanned, the IRS doesn’t care. You must pay the bill. Sometimes they charge interest or penalties if your affairs are not completed in a timely manner.
Common Equity Mistakes
Because the IRS is such a stickler, you can make some costly mistakes when it comes to your equity. Some of the problems are unattended 7-figure (or larger) positions, selling shares emotionally, and not understanding tax obligations.
A surprise tax bill on April 15th is irritating. It’s worse when you don’t have the cash to pay it. With equity that doesn’t care and a tax body that is particular, you must be careful.
Using a Strategy to Produce and Maintain Wealth
A plan for your wealth is valuable in countless ways – both tangible and intangible. When you have a strategy, you benefit financially and it eases a lot of stress. And you can pay your tax bill with no problem on April 15th.
Here are some basic pointers for making a plan.
- Understand what equity you own – ISOs, NSOs, RSUs, etc.
- Know the tax implications of your ownership
- Develop a plan and stick to it
There are many different types of stock ownership. There are positives and negatives to each kind. They each have their own tax rules, and what you can or can’t do with them. Knowing what these are will help you in the short term and the long run.
Making a plan for your equity and sticking with it is so important. A program on when you sell your shares is so helpful. You will manage your wealth, pay lower taxes, and avoid emotional decisions with your shares.
If your approach to stock ownership is hope, then you are playing the wrong instrument.
We can set up some time to speak about stock plans, music, and whatever else you like – at a classic New York City diner.
Photos: Melia Clapton, Linda Forish