Tag Archives: taxes


Improving Tax Results for Your Stock Option or Restricted Stock Grant, Part 3

Wrapping It All Up: Tax Strategies In this third and final part to our series on the taxation of stock options and restricted stock units (RSUs), we’ll outline some strategies you can use to achieve better tax consequences. While the list below is definitely not comprehensive, it does cover some impactful strategies. Remember that — based on the various types of taxes described in Part 1 of this series — through good tax planning, you may be able to achieve a 19.6% improvement in your federal taxation rate. This improvement represents the difference between the federal ordinary income tax at 39.6% and the long-term capital gains rate at 20%. Early-Stage ISO Exercise and Hold While this may seem like it […]

Improving Tax Results for Your Stock Option or Restricted Stock Grant, Part 2

Applying the Tax Law to Common Employee Stock Situations In the first part of this three-part series, we discussed the four main taxes relevant to individuals. Now we’ll apply that knowledge to show what taxes would be incurred in five common situations faced by employees who work for venture-capital-backed companies. 1: Angel Investment or Founder Stock For many start-up companies, the first money in comes from angel investors or the founders themselves in exchange for preferred and common stock, respectively. In exchange for cash, investors (perhaps through a limited partnership) and founders receive shares of stock. The capital gains holding clock starts with the purchase of these shares, and it stops upon disposition of the stock. The shareholder realizes a […]

The Post-IPO Dilemma: Hedging Your Stock

If your company recently went public and your stock price has gone up significantly then you’re probably wondering how you can hedge your position. Unfortunately there’s nothing you can do while you’re still in the 180-day lock-up period. Most lockup agreements have extremely detailed restrictions included, designed to prevent almost any form of market participation with a security.  It’s too long to reproduce anything but a sample here, but it typically begins like this: In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of [names of managing underwriters], […]

When Success & Stock Options Make It Expensive to Leave

They can be an incredibly rewarding and inviting incentive. And among those working in Silicon Valley stock options have become an inextricable part of most job offers. However, actually benefitting from them is not always as easy as you might think. Employees who decide to leave mid-sized companies often awaken to a pretty big and increasingly common surprise — they can’t afford to exercise their options. In our post The 14 Crucial Questions About Stock Options we discuss the questions you need to ask about the stock option component of your offer before you join a new company. We specifically didn’t address how long you see yourself staying with the new employer or when the company is likely to go […]

Tax Issues for Married Same-Sex Households

Sixteen states and the District of Columbia now allow same-sex couples to legally marry. Late last year, New Jersey joined the states already allowing it, and most recently, Oklahoma and Utah have overturned bans. All this followed on the heels of an IRS ruling in late August that recognizes legally married same-sex couples as married couples when it comes to federal tax purposes and other areas of federal law. And that ruling followed the defeat of the Defense of Marriage Act in June. All this adds up to a lot of people needing to either re-examine their filing status or aspects thereof. Simply put, if you have not already done so, you need to: Re-evaluate your federal filing status Consider […]

Minimize Your Investment Taxes

Our Chief Investment Officer, Burt Malkiel, famed author of “A Random Walk Down Wall Street”, has spent the past 40 years explaining that investors can’t control the market, so they should focus their efforts on the three investment tactics within their control: Diversify and rebalance your portfolio Minimize fees Minimize taxes Previously, we’ve published strong opinions on the value of diversification and advisor fees. However, too often the industry avoids talking about one of the most important aspects of maximizing your long-term investment results: minimizing taxes. The Four Ways to Minimize Taxes There are four ways that financial advisors can significantly reduce your investment taxes: Index Funds Intelligently rebalance your portfolio with dividends Different asset allocations for taxable & retirement […]

Always File Your 83(b)

One of the most valuable terms in your option agreement is the ability to exercise your options before they have vested. The ability to exercise early allows you to change the gain on all your options from ordinary income to a long-term capital gain, which is taxed at a much lower rate. I don’t mean to make this sound like a public service announcement, but you must file your 83(b) within 30 days of your early exercise. Unfortunately there are many people who don’t and then are surprised at the big tax bill they get hit with. What Exactly Is An 83(b)? Section 83 of the Internal Revenue Code states that you do not have to recognize income from owning […]

7702 Retirement Plan? There’s No Such Thing

A growing number of insurance companies and independent financial advisors have been selling “7702 Plans,” sometimes referred to as a “7702 Private Plan,” for retirement. On Google alone, a query for “7702 plan” results in almost 1.5 million pages of matches. This is fascinating, largely because there is no such thing as a 7702 plan. A vehicle for selling life insurance If you go to one of the thousands of websites, you’ll find a description of something that sounds like a 401(k) or IRA, but is based on life insurance. The page will explain that unlike traditional retirement plans like 401(k) and IRA accounts, “life insurance retirement plans” have no limit on contributions or size, and no requirements for withdrawals […]

Three Ways To Avoid Tax Problems When You Exercise Options

I love the movie Wall Street because Gordon Gekko’s single-minded pursuit of money led to his downfall. This is not just a Hollywood story. In my past role as a tax accountant in Silicon Valley, I saw many executives and employees get greedy, too. By attempting to capture an early gain in their company’s stock, they exercised so many stock options that they didn’t have enough money to pay the taxes due on their gains. A surprisingly large number of people fall into this trap. Some of them are just ill-informed. Others, I believe, are overcome by their greed: It causes them to forget that stock prices can go down as well as up, or keeps them from embracing a […]

9 Signals You Should Hire A Tax Accountant

Many of our clients use TurboTax until they hit certain triggers in the complexity of their financial lives. If you spent more than a few hours on your taxes this year, it’s time to ask yourself whether it makes sense to outsource this portion of your financial life to an accountant. One of my rules in life – a rule that helps keep me balanced – is to outsource what I don’t enjoy or what someone else can do better than I. If you don’t enjoy something and you can hire someone to do it better than you can and it doesn’t cost too much, then doing so is a no-brainer. For many of our clients who are rising fast […]