Along with awkward office holiday parties, year-end is a key time for financial and tax planning among the millions of employees who have stock compensation or holdings of company shares. In 2017, year-end financial and tax planning can be tricky because of the major tax changes that are likely to occur in 2018 under legislation now in Congress (for background, see our FAQ on that topic).
To help, we offer education and guidance on major issues, decisions, and innovative financial-planning strategies for the end of 2017 and the start of 2018. This content is available in the our section Financial Planning: Year-End.
Tax Brackets And Rates Affect Year-End Planning For Equity Compensation And Company Shares
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.
Along with the financial- and tax-planning concepts that apply at the close of every year, in 2017 you should still consider the ongoing impact of the tax changes that took effect under the American Taxpayer Relief Act and the Affordable Care Act.
While the tax-reform legislation in Congress does not affect 2017 taxes, as part of your year-end planning you should consider its potential impact on your tax rates in 2018 and later. These may include a simplification of individual income tax rates and the elimination of the AMT, which could result in a tax cut for many people who are now in the top tax bracket but also could result in a tax increase for others. For example, under the bill in the House of Representatives some taxpayers currently in the 33% tax bracket would move into the 35% bracket for compensation income and short-term capital gains. The current (2017) 33% tax bracket for married joint filers goes from $233,350 to $416,700 of taxable income. The income range for the proposed 35% bracket would start at $260,000, so income above that threshold would move you up to the 35% marginal tax rate.
Know Tax-Bracket Thresholds For 2017 And Follow Proposed Thresholds For 2018
Timely year-end guidance is particularly crucial if you are considering option exercises or stock sales at the end of 2017. Be aware of the 2017 and 2018 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.
If possible, you may want to consider keeping your income below those known thresholds. Convinced that your tax rates will be lower in 2018 and beyond? The general recommendation is to think about deferring income into the future and accelerate deductions into 2017.
However, caution is warranted. Even if you predict that your tax rates are likely to change in the future, many experts maintain 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.
Year-End Content Provides Education And Guidance
At myStockOptions.com, our section Year-End Planning has been fully updated for 2017. Its content includes the following articles and FAQs.
Articles
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
FAQs
What are some year-end strategies for restricted stock and stock options?
Alongside these, other FAQs in the year-end section answer advanced 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.