Equity Compensation

What it is. An RSU is a company promise to deliver shares (or their cash value) to you on a future vesting date. You don't own anything at grant — there's nothing to buy and no shares in hand until the units vest.

How and when it's taxed. At vesting, the value of the delivered shares is ordinary income — supplemental wages on your W-2. Employers usually withhold federal tax at the flat 22% supplemental rate (on the first $1,000,000 of supplemental wages in a year; the excess is withheld at a mandatory 37%). If you later sell, any change in price since vesting is a capital gain or loss.

The common pitfall. Assuming that 22% withholding settles the bill. If your true marginal bracket is higher, you're under-withheld and owe the difference at filing.

How we help. We estimate your real liability, plan for the shortfall before it's due, and help you set a rules-based approach to the single-stock concentration that builds up as units vest.

What it is. An RSA is a grant of actual shares up front, subject to vesting — you hold them from day one, but they can be forfeited if you leave before they vest. RSAs are most common at early-stage companies and for founders.

How and when it's taxed. By default, the value of the shares is ordinary income as they vest. But because you receive real property at grant, you may file a Section 83(b) election within 30 days of grant (no extensions) to be taxed on the usually-low grant-date value now, shifting future appreciation to capital-gains treatment.

The common pitfall. Two mirror-image mistakes: missing the hard 30-day 83(b) window when an election would have helped — or making the election, paying tax up front, and then forfeiting the shares, since that tax is not recoverable.

How we help. We work through the 83(b) trade-off for your situation and coordinate the timing and paperwork with your CPA so the decision is deliberate, not accidental.

What it is. A PSU is like an RSU, but vesting depends on performance goals — total shareholder return, revenue or earnings targets, or other metrics — often on top of a time requirement. The number of shares you ultimately receive can land well above or below the original target.

How and when it's taxed. When the performance condition is met and shares are delivered, their value is ordinary income at vesting, with the same supplemental-withholding mechanics as RSUs. Later price changes are capital gains or losses. Because PSUs are unfunded units rather than transferred property, an 83(b) election generally does not apply.

The common pitfall. Planning withholding around the target payout and getting surprised by a high one — a payout that vests at, say, 200% of target is a large, lumpy income event the flat 22% rarely covers.

How we help. We model the range of performance outcomes, so the cash you set aside for tax tracks the payout you actually receive rather than the one on the grant letter.

What it is. An ISO is a statutory option to buy company shares at a fixed strike price, eligible for preferential tax treatment if you meet the holding rules. Only $100,000 of ISOs (measured by grant-date value) can first become exercisable in any one year; anything above that limit is treated as a non-qualified option.

How and when it's taxed. There's no regular tax at grant or at exercise. But the "bargain element" — fair market value minus your strike — at exercise is an Alternative Minimum Tax (AMT) preference item that can create a tax bill on a paper gain. Hold the shares more than two years from grant and more than one year from exercise (a qualifying disposition) and the entire gain is long-term capital gain; sell earlier (a disqualifying disposition) and the bargain element becomes ordinary income. (2026 AMT exemptions: $90,100 single / $140,200 married filing jointly, phasing out above $500,000 / $1,000,000.)

The common pitfall. Exercising and holding for the qualifying treatment without planning for AMT — then owing tax even if the stock later falls.

How we help. We model your AMT exposure, plan the timing and size of exercises, and weigh the qualifying-disposition holding period against your concentration and cash-flow picture.

What it is. An NQSO is an option to buy company shares at a set strike price, without the special statutory status ISOs carry. They're the more flexible, more common option type.

How and when it's taxed. No tax at grant (assuming the strike is set at fair market value). At exercise, the bargain element — fair market value minus your strike — is ordinary income reported on your W-2 and subject to supplemental withholding. When you later sell, any change in price since exercise is a capital gain or loss, short- or long-term depending on how long you hold.

The common pitfall. Exercising a large block in a single year, which stacks a big slug of ordinary income on top of your salary and can push you into a higher bracket — or assuming payroll withholding fully covers that income when it often doesn't.

How we help. We help you plan exercise timing across tax years, estimate the true cost in tax and cash, and coordinate the withholding so the exercise doesn't create an April surprise.

What it is. An ESPP lets you buy company stock through payroll deductions, typically at a discount of up to 15%, often with a "lookback" that prices the purchase off the lower of the start-of-period or purchase-date price. Most large-company plans are tax-qualified under Section 423, which caps your purchases at $25,000 of stock value (measured at the offering-date price) per calendar year.

How and when it's taxed. In a qualified plan there's no tax at purchase. Tax depends on how long you hold: a qualifying disposition (more than two years from the offering date and more than one year from purchase) taxes a limited part of the discount as ordinary income and the rest as long-term capital gain; a disqualifying disposition (selling earlier) taxes the full purchase-date discount as ordinary income, with the remainder as capital gain.

The common pitfall. Not knowing which holding-period clock you're on — and letting ESPP shares quietly pile up, deepening single-stock concentration.

How we help. We help you weigh the holding-period decision against your tax picture and fold the ESPP into a deliberate diversification plan rather than an accidental one.

What it is. Phantom stock is a cash bonus that tracks the value of company shares — you're credited with notional "units" that rise and fall with the share price, but you don't own actual stock, get no voting rights, and hold no real equity.

How and when it's taxed. Because it's deferred cash compensation, there's no capital-gains treatment. The payout is ordinary income (wages) when it's settled and paid to you. (Payroll taxes — Social Security and Medicare — can apply earlier than income tax, at the point the award vests, under a special timing rule for deferred compensation.) These arrangements are usually nonqualified deferred compensation governed by Section 409A, which dictates when and how the payout can occur.

The common pitfall. Treating it like equity you can time. Section 409A locks the payout schedule — you generally can't accelerate it, and missteps carry steep penalties. The award is also an unsecured promise, so it carries the company's credit risk until paid.

How we help. We help you understand the payout terms and 409A timing, and fit the eventual cash event into your broader income and tax plan so it doesn't arrive unplanned.

What it is. A SAR pays you the appreciation in the share value above a set base price, settled in cash or shares — without the upfront cost of exercising an option. You capture the gain over the base price without buying the stock outright.

How and when it's taxed. At exercise or settlement, the appreciation amount is ordinary income subject to supplemental withholding — similar to an NQSO, but with no cash outlay to exercise. If the SAR settles in shares and you hold them, later price changes are capital gains or losses. SARs granted with a base price below fair market value at grant can fall under Section 409A.

The common pitfall. The same timing trap as options — a large exercise drops a concentrated block of ordinary income into one tax year — plus overlooking the 409A exposure if the award wasn't structured at fair market value.

How we help. We help you plan the timing of exercises, estimate the tax and withholding, and coordinate SARs with the rest of your equity so the income lands when your plan can absorb it.