Along with colored lights, Christmas trees, and office holiday parties, year-end is also a key time for financial and tax planning, especially for the millions of employees who have stock compensation or holdings of company shares.
Tax changes introduced in 2018 by the Tax Cuts & Jobs Act (tax reform) continue to affect their year-end-planning decisions. Meanwhile, the election year ahead in 2020 presents uncertainty about the future of tax laws that affect financial- and tax-planning strategies.
To help keep the season merry and bright, myStockOptions.com provides education and guidance on major issues, choices, and innovative financial-planning strategies for the end of 2019 and the start of 2020. This content is available in the website's section Financial Planning: Year-End Planning and through content licensing.
Tax Brackets And Rates Affect Year-End Planning For Equity Compensation And Company Shares
Financial planning at year-end 2019 is more important than ever for employees with equity compensation who are:
- evaluating whether to exercise stock options
- planning to sell shares acquired from restricted stock, restricted stock units, or an employee stock purchase plan (ESPP)
- donating company stock to charities
Multi-year planning for income from stock compensation and stock sales is especially crucial. "You can control the timing of stock sales and option exercises, and you know when restricted stock/RSUs will vest," notes Bruce Brumberg, the Editor-in-Chief of myStockOptions.com. "Employees with equity grants, employee stock purchase plans, and company shares should be aware of the 2019 and 2020 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." These employees, for example, may want to consider keeping their income below those known thresholds, if possible, while evaluating whether there is enough withholding to cover the taxes owed.
"A big restricted stock/RSU vesting could push your income above the level that triggers the highest capital gains tax rate of 20% and/or the Medicare surtax of 3.8% on investment income," continues Mr. Brumberg. "If your income in the next calendar year will be less than the level that triggers those higher rates, waiting until 2020 to sell stock could give you a capital gains tax rate of just 15% and no Medicare surtax."
Factors That Drive Year-End Decisions
However, tax rates should not be the only consideration, cautions Mr. Brumberg. "Even if you predict that you will be in a lower tax bracket in the future, many experts maintain that tax rates should never be the main 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."
Year-End Content Provides Education And Guidance
At myStockOptions.com, the section Year-End Planning has been fully updated for 2019, including revisions for what's different after tax reform. This content includes the following articles and FAQs.
Articles
- 12 Ideas For 2019 Year-End Planning With Stock Compensation (Parts 1 and 2)
- 7 Year-End Strategies For Restricted Stock, RSUs, And Performance Shares
- Year-End Strategies For Employee Stock Purchase Plans
- Stockbrokers' Secrets: Year-End Planning For NQSOs, Restricted Stock, And RSUs
- Stockbrokers' Secrets: Year-End Planning For ISOs
- Leading Advisors Reveal Year-End Strategies For Equity Comp & Company Stock
- Making Gifts Of Company Stock
- Making Donations Of Company Stock
- Six Ways Tax Reform Affects Your Stock Compensation And Financial Planning
FAQs
- What should be on my 2019 year-end checklist of items to review, know, and consider about my stock compensation?
- What are some key planning strategies at year-end 2019 for restricted stock, RSUs, 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?
- If I sell stock this year, I can avoid higher taxes next year, including the 3.8% Medicare surtax on capital gains. What issues should I consider?
Alongside the core year-end articles and FAQs, other FAQs in the year-end section answer advanced tax-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 the 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 myNQDC.com, a separate sibling publication of myStockOptions.com. Key year-end content there includes the following FAQs:
- At year-end 2019, when I am deciding on salary deferrals into my nonqualified plan for the year ahead, what should be the top issues in my decision-making?
- What are the 2019 adjustments to the IRS limits for qualified retirement plans that affect nonqualified deferred compensation?
Corporate Licensing Available
For companies, education is vital for ensuring that stock compensation motivates and retains highly valued employees and executives. The expert yet reader-friendly content at myStockOptions.com is ideally suited for licensing by companies and stock plan providers for their stock plan participants. For more information, visit myStockOptions.com, email [email protected], or call 617-734-1979. Content from myNQDC.com on nonqualified deferred compensation plans is also available for licensing.
myStockOptions 2020 Advisor Conference: Save The Date!
The 2020 myStockOptions conference, Financial Planning for Public Company Executives & Key Employees, will be held on June 15 and 16 at the Hilton San Francisco Airport Bayfront. The conference is for financial advisors working with executives, directors, and highly compensated employees at public and private companies, as well as others interested in those topics. The event will start on the afternoon of June 15 with an advisor boot camp on equity comp. A full day of conference sessions with expert speakers will follow on June 16.
Our conference is recommended in The 20 Best Conferences For Financial Advisors To Choose From In 2020 by financial-planning thought leader Michael Kitces! Please contact us ([email protected]) to be notified when registration starts at the early-bird discount rate.
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