When holiday decorations and Christmas songs emerge, so does interest in year-end financial and tax planning among those with stock compensation or holdings of company shares. In 2016, year-end planning can be tricky if you weigh the ongoing impact of recent tax-rate changes against expected tax reforms ahead under the new president. To help people with planning at the end of 2016 and the start of 2017, the year-end section at myStockOptions.com provides education and guidance on major issues, decisions, and innovative financial-planning strategies.
Tax Brackets And Rates Affect Year-End Planning For Equity Compensation And Company Shares
Along with the financial- and tax-planning concepts that apply at the close of every year, in 2016 people with equity comp and company shares will want to continue considering the impact of the tax changes that took effect under the American Taxpayer Relief Act and the Affordable Care Act.
Timely year-end guidance is particularly crucial for people who are considering option exercises or stock sales at the end of 2016. Employees with equity grants and company shares should be aware of the 2016 and 2017 thresholds for higher tax rates on compensation income and capital gains, the additional Medicare tax on compensation income, and the Medicare surtax on investment income. They may want to consider keeping their income below those thresholds, if possible. If you are convinced that tax rates will be lower in 2017 and beyond, you may want to defer income into the future and accelerate deductions into 2016.
While keeping these tax rates and thresholds in mind, employees should also consider the prospects for tax reforms ahead under President Donald Trump. In 2017, President Trump will probably propose tax-law changes that are supported by the Republican-controlled Congress. These changes are expected to include:
- a simplification of individual income tax rates, including a reduction in the top rate
- the elimination of the alternative minimum tax
- the repeal of Obamacare and the related Medicare taxes that fund it under the Affordable Care Act
However, caution is warranted. The prospects for tax-rate decreases, and their timing, remain too uncertain to be a controlling factor in decision-making at year-end 2016. Even if you predict that tax rates are likely to change in the future, many experts say that tax rates should never be the only reason for exercising options or selling shares, or waiting to do so, at the end of the year. Instead, make investment objectives and personal financial needs, not tax considerations, the driver of your decisions.
At year-end, multi-year planning is especially valuable with equity compensation. You can control the timing of stock sales and option exercises, and you know when restricted stock/RSUs will vest.
Year-End Content Provides Education And Guidance
At myStockOptions.com, the section Year-End Planning has been fully updated for 2016. Its content includes the following articles and FAQs.
- Top Ideas For Year-End Tax Planning With Stock Compensation (Parts 1 and 2)
- Year-End Strategies For Restricted Stock, RSUs, And Performance Shares: Seven Ideas To Consider
- Year-End Strategies For Employee Stock Purchase Plans: Ideas To Consider
- Stockbrokers' Secrets: Year-End Planning For NQSOs, Restricted Stock, And RSUs
- Stockbrokers' Secrets: Year-End Planning For ISOs
- Top Advisors Reveal Strategies For Equity Comp And Company Stock At Year-End
- Making Gifts And Donations Of Company Stock
- How The Trump Presidency And Tax Reform May Affect Stock Compensation
- What are some year-end strategies for restricted stock and stock options?
- Next year I may be in a higher tax bracket. I am thinking about exercising my nonqualified stock options before then to accelerate income into this year. What issues do I need to think about?
- My income next year will trigger higher taxes, including the 3.8% Medicare surtax on capital gains. If I sell stock this year, I can avoid these taxes and then next year repurchase the stock to reset the basis. What issues should I consider?
Alongside the core year-end articles and FAQs, other FAQs in the year-end section answer advanced related questions, including:
- How can employees defer income to years when they are in a lower tax bracket?
- How do the additional Medicare taxes on high earners affect planning for stock compensation?
- How do employees harvest capital losses against capital gains from company stock holdings?
- Are there strategies for using capital-loss carry-forwards from prior years?
- What risks are posed by the wash sale rule?
- What year-end strategies can help to minimize alternative minimum tax with incentive stock options?
- How can employees save taxes on company stock by making gifts and donations, including those to private foundations or grantor-retained annuity trusts?
All of these questions, and many others, are answered in our section Financial Planning: Year-End Planning. In addition, the calculators and modeling tools at myStockOptions.com allow users to play out various "what if" scenarios with different tax rates and stock prices.
For similar education and guidance on year-end planning for nonqualified deferred compensation, employees can turn to our other website, myNQDC.com.