For those who haven't yet filed federal tax returns, it's getting late in the fourth period, but there is still time to beat the IRS buzzer. The deadline for filing tax returns with the IRS for the tax year 2017 is April 17, 2018.
In any tax season, the recognition of income from stock compensation or an employee stock purchase plan can complicate your return. Examples include income from an NQSO exercise, an ISO or ESPP disqualifying disposition, or the vesting of restricted stock. However, as regular readers of this blog will know, this tax season has the potential to be more confusing than most if you sold any stock last year. Issues are especially likely to arise with the cost basis as reported on Form 1099-B and with the tax-return reporting on Form 8949 and Schedule D. For help, including annotated diagrams of Form 8949 and Schedule D, see the special section of myStockOptions.com called Reporting Company Stock Sales.
Can't Beat The Buzzer? IRS Deadline Extensions For Tax Returns
If you need to take the game into overtime, you can get an extension of the federal filing deadline by up to six months. No explanation or signature is needed. You can request an extension in any of three traditional ways: on IRS Form 4868, through a paid tax preparer, or via tax-return software.
Note that an extension for your federal tax return applies only to the filing of your return, not to the tax itself, which you must pay by the original IRS filing deadline.Therefore, if you get an extension you must accurately estimate how much tax you must pay by the 17th. By paying 100%, you avoid interest and penalties; if you can't manage that, you can still avoid the penalty by paying 90%. If you owe additional taxes when you eventually file, you will have to pay interest on the unpaid amount going back to the original April due date.
For more details on extensions to file and the penalties for the late payment of taxes, see the related FAQ at myStockOptions.com.
Looking Ahead: 2018 Income
When your federal and state tax returns are finally done and you're ready to move on with your life, you may want to make projections of your income in 2018. These should be done with the following three planning points in mind.
First, as in the past few years, individuals who expect income of more than $200,000 this year ($250,000 for married joint filers) should consider the additional Medicare taxes on ordinary income and investment income that were introduced by the Affordable Care Act (Obamacare). Despite the failed efforts last year to repeal Obamacare, it and the taxes introduced to fund it are still in effect.
Second, consider the tax changes that took effect in 2018 under the Tax Cuts & Jobs Act, which has provisions that directly and indirectly affect stock compensation. For details on the impact of these changes on planning for stock compensation and company shares, see the related article on myStockOptions.com.
Third, if you expect additional income from stock comp in 2018, and if your withholding rate will be inadequate to cover the taxes you will owe for the full year, you may want to make estimated tax payments, or at least see whether you can adjust your salary withholding. (The withholding rate for supplemental income, such as equity compensation, is 22% up to $1 million during the calendar year and 37% for yearly income in excess of $1 million.) To avoid penalties, be sure you pay the IRS either 90% of your expected tax bill or 100% of this year's taxes (for adjusted gross incomes over $150,000, it is 110%). Penalties are calculated on a quarterly basis, so you must make estimated tax payments in the quarter when you earned the income.
Note: Details of estimated taxes, including the due dates, are discussed in IRS Form 1040-ES, and on myStockOptions.com in the sections NQSOs, ISOs, Restricted Stock, and SARs.
Register For Our Financial-Planning Conference
We are preparing to hold our first-ever conference, a one-day event: Financial Planning for Public Company Executives & Directors (Monday, June 18, 2018). Taking place in the Boston area, this is a must-attend national conference for financial, tax, and legal advisors working with or wanting to counsel executives, directors, and high-net-worth employees. We have a wonderful group of expert speakers and a comprehensive agenda of sessions on various stock-related and financial-planning topics:
- trends of importance to advisors
- tax, estate, and SEC-related planning challenges
- methods for attracting and advising high-net-worth clients
- case studies and other examples of successful planning strategies
CE credits will be available! Register at the conference website or contact us for more information (617-734-1979, firstname.lastname@example.org).