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Post-Election Updates At myStockOptions.com Help Employees With Year-End Planning For Stock Options, Restricted Stock/RSUs, And Company Shares

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.

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?
• 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.

What A Trump Presidency And Tax Changes Could Mean For Stock Compensation

Objectively, we know that stock compensation is not one of the biggest issues on people's minds as the United States slithers toward the unexpected reality of a Trump presidency. Naturally, however, it is our role to consider how stock compensation and employee ownership will be affected.

How Do Trump And His Supporters View Stock Compensation?

To get a sense of Donald Trump's views on stock comp, the myStockOptions staff did some in-depth research into SEC filings made by him and his companies. In 1995, the board of Trump Hotels & Casino Resorts adopted what it called its 1995 Stock Incentive Plan, which it amended in 1996 to increase the number of authorized shares it could issue (see pages 20–22 of the company's 1996 proxy statement). Trump himself received 500,000 stock options per year between 2000 and 2002 (see the tables, text, and footnotes on pages 16–18 of the company's 2003 proxy statement). Later, when Trump was chairman of the board at Trump Entertainment Resorts, the company adopted a stock plan at its 2005 annual meeting as part of its reorganization, and it canceled its prior plan and all of the grants made under it (see Proposal 3 on page 35–41 and Annex A of the company's 2005 proxy statement). Like other senior executives, Trump had to file Form 4 with the SEC to report his grants under the rules of Section 16 (see, for example, the reporting of his 2002 grant). Therefore, we can assume that Trump is familiar with stock options and restricted stock, though his company's subsequent bankruptcy eliminated the value of its grants.

It doesn't take a degree from Trump University to know that equity awards made broadly to a company's employees, along with employee stock purchase plans and other forms of employee ownership (e.g. ESOPs), are forms of egalitarian capitalism that can spread a company's wealth and reduce income inequality (see our recent blog commentary on this topic). Trump's supporters seem likely to approve of such a populist approach to employee compensation. However, the recent narrowing of stock grant eligibility and the huge equity comp gains made by senior executives have perhaps given stock compensation an elitist image that Trump's blue-collar supporters can be expected to find deplorable.

Republican Tax Reform May Increase The Value Of Stock Compensation

Tax changes are widely expected under Trump's presidency and the incoming Republican-dominated Congress (see a commentary from CCH). The House GOP Tax Reform Blueprint calls for the simplification of individual income tax rates to 12%, 25%, and 33%. How changes in income-tax rates would tie into the flat supplemental rate of withholding on stock compensation is unclear and would need clarification, as the structure of the rate is based on the current seven tax brackets.

Trump's tax plan does not propose to change the capital gains rates (15% and 20%). However, a reduction in the difference between ordinary income rates and the capital gains rates might affect tax-planning decisions, e.g. whether to hold shares at exercise, vesting, or purchase.

Changes may also include the elimination of the alternative minimum tax (AMT). That would be welcome news for anyone receiving grants of incentive stock options (ISOs), as currently the income spread at ISO exercise can trigger the AMT and complicate tax planning.

In addition, Trump vehemently asserted throughout his campaign that he wants to "repeal and replace" Obamacare. Presumably, that would eliminate the additional Medicare taxes used to fund Obamacare under the Affordable Care Act. Those additional taxes are:

• The 3.8% surtax on net investment income, such as capital gains and dividends, for single filers with yearly modified adjusted gross income of over $200,000 ($250,000 for married couples filing jointly). The removal of the surtax would increase the appeal of holding shares.
• The extra 0.9% Medicare tax owed by the same taxpayers through the withholding on compensation income, such as income from the exercise of nonqualified stock options or the vesting of RSUs.

Given the enormous federal budget deficit, the likely need for 60 votes in the Senate to defeat a filibuster and pass a major tax overhaul, and Trump's inexperience in the art of political compromise, there are no guarantees that these proposals will become law. One possible way to fund them to reduce the impact on the national debt would be to eliminate provisions that are favorable to stock compensation, such as the performance-based exception for limiting the corporate tax deduction under IRC Section 162(m).

Outlook For The Future

In the short term, with little risk of tax increases in 2017, there is no pressing tax-law reason to accelerate income into 2016. Even if you do predict that your tax rates are likely to drop or rise in the future, taxes should never be the only planning consideration for stock options and company stock at year-end. Instead, you may want to let investment objectives and personal financial needs, not tax considerations, drive your year-end planning.

In the long term, your company's stock price, not tax legislation, is likely to be the most crucial factor for your equity compensation. When a stock price falls after grant or becomes excessively volatile, equity grants tend to lose their perceived value (even if stock options do not actually go underwater). Therefore, if stock prices continue to perform well and we avoid the falling prices of a bear market, we can perhaps reasonably expect that stock compensation, ESPPs, and employee ownership will continue to thrive, especially when these opportunities are granted broadly to most or all employees in an egalitarian way. Additionally, the success of stock compensation depends not only on a company's share price but also on the efficacy with which it both communicates its stock plan to employees and provides them with educational resources on their grants. 

Decision Time For Nonqualified Deferred Compensation (NQDC): Top Issues In Choosing Salary Deferrals For 2017

November and December are high-traffic times for our sibling website myNQDC.com, a comprehensive resource on nonqualified deferred compensation (NQDC). The last quarter of the year is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. Participants in NQDC plans choosing how much of next year's salary to defer can find plenty of financial-planning guidance at myNQDC.com. See also our FAQ on year-end planning issues, which may shift in upcoming years with a new president and the possibility of tax reform.

As expected, this presidential election year brought no tax changes of significance. Therefore, known tax-rate increases or decreases are not big factors in decisions at year-end 2016. However, after the new president has been elected, the likelihood of major tax reforms in the next few years may affect your long-term decision-making.

Year-End Issues To Consider

In the analysis for choosing deferrals to make in 2017, one ongoing issue stems from the tax increases that took effect in 2013, including the additional Medicare taxes for high earners. Other points to consider include the following.

1. Maximizing the amount you can contribute to your 401(k) plans.You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security.If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes.

To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Alert: Because of the NQDC election rules, participants should carefully consider elections. The rules of IRC Section 409A severely restrict the ability to make changes in NQDC deferrals.

Consider Limits On Contributions To Qualified Plans

Influencing year-end decisions about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

What this means: The changes in limits from 2016 to 2017 are slight. If you have already maxed out your qualified plan contributions for 2016, you will probably do the same in 2017, so you will need to rely on NQDC plans to defer any salary and bonus increases you expect in 2017.

The contribution limits for qualified plans are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces figures for the following year. The limits are adjusted annually for inflation. While there are slight increases in some limits for 2017, in others the 2016 limits continue. (See the IRS release announcing the figures for 2017.)

Contribution type/limit	2016	2017
Compensation allowed in qualified deferral and match calculation	$265,000	$270,000
Elective compensation deferrals	$18,000	$18,000
Catchup contributions for people aged 50 or older	$6,000	$6,000
Total defined contribution limits (employee and employer contributions)	$53,000 + catchup contribution	$54,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$215,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$175,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$120,000

Set by the Social Security Administration, the Social Security wage cap will rise in 2017 to $127,200, a significant increase from $118,500 in 2016. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2017 is $7,886.40.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com.

Social Security Wage Base Hike In 2017 Affects Year-End Planning For Stock Options

The Social Security Administration (SSA) has announced that the maximum wage amount in the Social Security tax calculation, including supplemental income from stock compensation, will grow from $118,500 in 2016 to $127,200 in 2017. Therefore, at the 6.2% Social Security tax rate, the maximum annual amount that you can owe will increase from $7,347 in 2016 to $7,886.40 in 2017. This is a surprising jump of more than 7%, especially after no change in the wage base from 2015 to 2016. Companies and stock plan administrators must adjust their systems to factor the higher wage base into the Social Security calculation for NQSO exercises, restricted stock/RSU vesting, and purchases of nonqualified ESPP shares.

The increase presents a year-end-planning strategy to consider. When you exercise nonqualified stock options or when restricted stock/RSUs vest, you owe Social Security tax up to this yearly income ceiling (Medicare tax is uncapped). If your yearly income is already over that threshold, you can exercise nonqualified stock options or stock appreciation rights before the end of 2016 without paying Social Security tax, and therefore you can keep an extra 6.2% of the related income. Were you to wait until January, your yearly wage base would start at $0, and Social Security tax would again apply up to the new maximum for that year. If you are already over the wage base for 2016 and expect to be eventually over the wage base for 2017, you can therefore save the $539.40 increase in Social Security tax simply by exercising stock options this year rather than in 2017.

For more year-end-planning strategies, see the articles and FAQs in the year-end section on myStockOptions.com.

Visit Us This Week At The NASPP Annual Conference In Houston!

We are excited to be at the NASPP's annual conference this week in Houston (October 24–27). As always, myStockOptions has its cheerful booth in the exhibit hall, where our editor-in-chief Bruce Brumberg is available as an NASPP-designated expert to answer questions on stock plan education/communications and on equity comp taxation. Bruce is also speaking on Tuesday at a panel in one of the conference sessions: Mind Your Ds & Ts: Death, Divorce, Disability and Terminations, a discussion of proactive measures to help your company, its employees, and their families better prepare for life events related to equity awards, including retirement, disability, death, and divorce. The session will take place on Tuesday, Oct. 25, 12:45–1:45 p.m. If you're attending the conference, please stop by our exhibit booth for a chat and pick up a myStockOptions souvenir!

Year-End Planning For Restricted Stock, RSUs, And Performance Shares

The clock is running out not only for your Christmas shopping. Time is also ticking down for year-end decisions with grants of restricted stock, restricted stock units (RSUs), and performance shares and any company stock you may own.

Like tastes in festive holiday knitwear, year-end financial and tax planning is very specific to the individual. It depends on a number of personal factors:

• your circumstances
• whether your decisions should be entirely tax-driven
• what you did earlier in the year
• your outlook for your company's stock price
• the prospects for changes in tax law during the year ahead

You want to do multi-year projections with your income and overall financial picture while being aware of the trigger points for:

• higher tax rates on ordinary income, capital gains, and dividends
• the Medicare surtax
• phaseouts for personal exemptions and itemized deductions

Below we present two general strategies that experts often suggest (you can read more in the full article on this topic at myStockOptions.com). Of course, if your situation is very complex or you are confused by tax rules, you should consult a financial advisor.

Editor's Note: See also a related FAQ for ideas on selling company stock at year-end to avoid higher tax rates on projected income in the following year. In addition, other articles discuss year-end planning for stock options and company stock and employee stock purchase plans.

1. Did Your Restricted Stock Or RSUs Vest This Year?

Unlike stock options, which trigger taxes when you choose to exercise them, restricted stock and restricted stock units usually give you no control over the timing of your taxes because you are taxed when the shares/units vest.

Alert: There are two exceptions to this general rule: (1) choosing to be taxed at grant (instead of vesting) by making a Section 83(b) election (which is unavailable for RSUs); and (2) having a special type of restricted stock unit that lets you defer delivery of the shares.

At vesting, you own the stock outright and have taxable W-2 income, along with your other compensation income during the year. Therefore, you may want to time and shift other income around this restricted stock/RSU income in 2015 to avoid triggering a higher income tax rate, the Medicare surtax, or the 20% top capital gains rate. For example, if you have nonqualified stock options (NQSOs) that you plan to exercise and hold, you may want to consider delaying this until early 2016, depending on your projections for your income and tax rates in 2016.

2. Remember The Increased Medicare Rate And The Medicare Surtax

The Medicare tax rate on compensation income (normally 1.45%) is 2.35% for single taxpayers with yearly earned income of more than $200,000 and for joint filers with yearly earned income of more than $250,000. For these people, the additional Medicare tax applies to income from the vesting of restricted stock/RSUs, along with all forms of compensation income. In addition, a 3.8% Medicare surtax applies to investment income, such as dividends and stock sale gains, for people in that same adjusted gross income range. If your income will trigger the surtax next year and you have shares from a restricted stock/RSU vesting that you intend to sell soon, you may want to consider selling in 2015 rather than 2016 to avoid the additional 3.8% tax.

Alert: The 3.8% surtax does not apply to income from restricted stock/RSU vesting. It applies only to the gains from selling shares that have been held. However, income from the vesting will increase your adjusted gross income, which can trigger these higher tax rates on investment sales and also the 0.9% additional Medicare tax on that income. Therefore, you want to consider the value of any future restricted stock/RSU vesting in your tax projections and, if you are planning to sell shares soon, whether to sell in late 2015 rather than in 2016.

Example: You and your spouse expect to have $200,000 of adjusted gross income in 2015 and again in 2016. You hold stocks and mutual funds with a gain of about $40,000 that you intend to sell in 2016 to fund your daughter's college tuition. However, you also have restricted stock units that will vest in 2016, and you project that the shares will provide $50,000 of compensation income. This additional income, plus the capital gains from the sale, will push your yearly income above the $250,000 threshold. Therefore, if you sell the stocks and funds in 2015 instead of 2016, you will avoid the 3.8% tax on the $40,000 of investment income.

For five more year-end tips with restricted stock and RSUs, including ideas to consider if your company's stock price rose or fell, see the full article at myStockOptions.com.

Ho, Ho...Huh? Year-End Planning For Equity Comp And Company Stock Can Be Tricky

The season of holiday movies, festive knitwear, and Christmas trees brings also the time for year-end financial and tax planning. At myStockOptions.com, we recommend promptly learning about the issues so that your yuletide year-end planning doesn't become The Nightmare Before Christmas.

Along with the planning concepts that apply at the close of every year, in 2015 people with equity comp and company shares will want to consider the ongoing impact of the tax-rate changes that took effect in recent years under the American Taxpayer Relief Act and the Affordable Care Act. Timely year-end guidance is particularly important for people who are considering option exercises or stock sales at the end of 2015 or the start of 2016. Employees with equity grants and company shares should be aware of the thresholds for higher tax rates on compensation income and capital gains in 2015 and 2016, 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. Beyond these issues, other planning conundrums may arise for people with stock options, restricted stock, or restricted stock units, and for participants in employee stock purchase plans.

Fortunately, the year-end articles and FAQs at myStockOptions.com provide helpful education and guidance on major issues, decisions, and innovative financial-planning strategies for the end of 2015 and the start of 2016. Here is our short guide to holiday reading for people with equity compensation and company stock:

• 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
• In Their Own Words: Advisors On Strategies For Equity Compensation And Company Stock At Year-End

• 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 these 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?

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 sister publication of myStockOptions.com.

Charitable Donations Of Company Shares: Initiative By Facebook Founder Mark Zuckerberg Puts Stock Donations In The Spotlight

As Santa Claus would tell you, the end of the year is a traditional time for donating to charities. Mark Zuckerberg, the founder of Facebook, has surely made Santa's permanent nice list. As reported last week by The New York Times and many other media sources, Mr. Zuckerberg and his wife, Priscilla Chan, have declared their intention to donate 99% of their Facebook stock wealth to charitable causes during the course of their lives. The New York Times adds that their move is the most prominent manifestation yet of "a growing interest in philanthropy among Silicon Valley's young billionaires."

While few of us become billionaires, for many people charitable giving at any level is a very worthwhile use of accumulated wealth, such as holdings of company stock. In fact, nonprofits appreciate gifts of shares as much as gifts of cash.

At myStockOptions.com we have an entire section on the topic of gifts and donations involving stock acquired from equity compensation. This blog commentary summarizes some of that section's guidance on how to make stock donations at year-end. For details, see our articles and FAQs on this topic. Be sure also to see our separate section with many general ideas for your year-end financial planning.

Timing

For year-end donations, be sure the stock transfer is completed by December 31 to make it count for the current tax year. For electronic transfers from your brokerage account, the donation is recorded on the day it is received by the charity/foundation (not when you approve the transfer). With increased year-end activity at brokerage firms, you should plan your year-end stock gifts as early as possible and have ongoing communications with your broker to ensure that the transfer takes place.

Tax Rules

For a charitable donation of company stock acquired from equity compensation, the tax treatment is the same as it is for donations of any stock to a qualified charity. (The tax treatment of gifting stock to donor-advised funds is similar to that of donating stock to qualified public charities.)

After you have held the company stock for more than one year, at the time of the donation you get a tax deduction equal to the fair market value of the stock (not to your cost basis). For stock acquired from an option exercise or an ESPP purchase, the holding period begins on the day after exercise/purchase, while for restricted stock/RSUs it starts on the day after vesting. If the sale of the appreciated shares would have triggered long-term capital gains, your deduction is up to 30% of your adjusted gross income (20% for family foundations), and you can carry forward higher amounts for five years.

Benefits

With a charitable gift of appreciated shares held long-term, the donation you make and the deduction you get are greater than they would be if you were to instead sell the shares and donate the cash proceeds. This is because when you donate shares, you avoid paying the capital gains tax.

Donation Example

Suppose you can either (1) donate $100,000 in company stock or (2) sell the stock first and donate the proceeds.

Stock: You donate $100,000 in company stock that you have held for at least one year (10,000 shares trading at $10 per share that you received at $1 per share) to a favorite charity. Your $100,000 tax deduction results in tax savings of $40,000 (assuming a 40% combined federal and state tax rate on your income).

Cash: You sell 10,000 shares, worth $100,000, and donate the cash. On your $90,000 gain ($100,000 minus the cost basis of $10,000) you pay $18,450 in taxes (15% federal capital gains tax plus the 5.5% state tax), resulting in $81,550. This amount will be lower if you trigger the 20% tax rate on capital gains and the 3.8% Medicare surtax. You get a tax deduction for the net amount of cash that you have donated. Your tax savings are $32,620 (40% of $81,550), $7,380 less than the tax savings with a donation of stock.

	Donation of stock	Donation of cash
Combined federal and state income taxes	40%	40%
Tax rate and amount for selling stock	(Not applicable)	20.5% / $18,450 (0.15 x $90,000)
Net amount to donate	$100,000	$81,500
Tax savings	$40,000	$32,620

Special Issues

If the donated shares were acquired from incentive stock options or an employee stock purchase plan, additional tax consequences occur if you donate the shares before you have met the required holding periods. (See also the FAQs on donating shares from a Section 423 ESPP after meeting the holding period, and gifting/donating ISO shares after triggering AMT.) Executives and directors will also want to review the Section 16 and Rule 144 requirements before gifting or donating company stock.

Much More Where This Came From

For other ideas on year-end planning, see the year-end articles and FAQs at myStockOptions.com. Our section about estate planning also has content related to the theme of gifts and donations.

'Tis The Season: Year-End Financial And Tax Planning For Stock Comp

When the holiday decorations spring up, so does the need for year-end planning if you have equity compensation or holdings of company stock. Fortunately, the year-end factors in 2015 have turned out to be more nice than naughty. Indeed, we predict that year-end financial and tax planning will be more peaceful and certain in 2015 than it may be during the next few years. The likelihood of tax changes in 2016, a presidential election year, is very low, so the prospect of tax-rate shifts is not a big factor in decisionmaking at year-end 2015. But enjoy the calm while it lasts. Before year-end 2016, a new president will have been elected on a platform probably including major tax reforms. Anticipated tax changes (and uncertainty around them) may then significantly affect decisionmaking.

For now, however, all is quiet on the tax front. This is the third year-end since the enactment of the American Taxpayer Relief Act (ATRA) and the Affordable Care Act. As with year-end planning the past few years, the tax changes that they introduced affect year-end planning in 2015, particularly for individuals with annual income of $200,000 or more. While joint filers making over $464,850 per year in taxable income are hit hardest, they are not the only people affected by the changes in tax law. As a result, tax planning remains important. Multi-year planning is especially valuable with equity compensation, as you can control the timing of stock sales and option exercises, and you know when restricted stock/RSUs will vest.

In the year-end section at myStockOptions.com, a two-part article presents some ideas for tax and financial planning (summarized below) to review before the end of the year.

1. Understand your tax rates and trigger points.
2. Consider the time value of tax money on an NQSO exercise.
3. Remember the additional Medicare tax.
4. Calculate the alternative minimum tax (AMT) when deciding when to exercise ISOs and NQSOs.
5. Examine standing orders when selling stock to get the right cost basis that minimizes taxes.
6. Avoid the impact of the AMT by selling ISO stock.
7. Use an early-in-the-year exercise of ISOs to pay the alternative minimum tax later (one of many ways to manage the AMT).
8. Make charitable donations by using appreciated stock.
9. Make gifts of stock.
10. Take advantage of the lower capital gains rate, and harvest losses.
11. Evaluate state and local taxes.
12. Preserve gain by "selling short against the box."
13. Consider exercising options for depressed shares.

See also two related FAQs for ideas on exercising stock options and on selling company stock at the end of 2015. In addition, other articles discuss year-end planning specifically for restricted stock and RSUs and employee stock purchase plans.

It's Decision Time For Nonqualified Deferred Compensation: The Top Issues In Choosing Salary Deferrals For The Year Ahead

This is a high-traffic time of year for our sibling website myNQDC.com, a comprehensive resource on nonqualified deferred compensation (NQDC). The fourth quarter of the year, and especially November and December, is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. Participants in NQDC plans choosing how much of next year's salary to defer can find plenty of financial-planning guidance at myNQDC.com, including an FAQ with year-end issues to consider.

We predict that year-end financial and tax planning will be more peaceful and certain in 2015 than it may be during the next few years. The likelihood of tax changes in 2016, a presidential election year, is very low, so tax-rate increases or decreases are not big factors in decisions at year-end 2015. However, before year-end 2016, a new president will have been elected on a platform probably including major tax reforms. Anticipated tax changes (and uncertainty around them) may then affect your decision-making.

Year-End Issues To Consider

In the analysis for deferrals to make in 2016, one ongoing issue stems from the tax increases that took effect in 2013, including the additional Medicare taxes for high earners. Other points to consider include the following.

1. Maximizing the amount you can contribute to your 401(k) plans.You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security.If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes.

To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Alert: Because of the NQDC election rules, participants should carefully consider elections. The rules of IRC Section 409A severely restrict the ability to make changes in NQDC deferrals.

Consider Limits On Contributions To Qualified Plans

Influencing year-end decisions about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan. If you have already maxed out your qualified-plan contributions, you will need to rely on NQDC plans to defer any salary increases you expect in 2016.

The contribution limits for qualified plans are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces figures for the following year. The limits are typically adjusted annually for inflation. However, no cost-of-living increase has been detected by the US government during the past year. Consequently, in 2016 the limits for contributions to qualified plans are the same as in 2015. (See the IRS release announcing the figures for 2016.)

Contribution type/limit	2015	2016
Compensation allowed in qualified deferral and match calculation	$265,000	$265,000
Elective compensation deferrals	$18,000	$18,000
Catchup contributions for people aged 50 or older	$6,000	$6,000
Total defined contribution limits (employee and employer contributions)	$53,000 + catchup contribution	$53,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$210,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$170,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$120,000

Set by the Social Security Administration, the Social Security wage cap also has not been increased for 2016 and remains at $118,500. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2016 is $7,347.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com.

Tick, Tock: The Time For Year-End Financial And Tax Planning With Equity Comp Is Almost Over

The clock is running out for year-end decisions that may have a big impact on your equity awards, including restricted stock units or stock options. In this blog commentary, we provide an introduction to the major issues arising with equity compensation at the close of the year.

No One Size Fits All

Like tastes in festive holiday knitwear, year-end financial and tax planning is very specific to the individual. Decisions in year-end financial and tax planning depend on a number of personal factors:

• your financial situation, including the short-term need to sell stock and/or exercise stock options
• whether your decisions should be entirely tax-driven
• what you did earlier in the year
• your outlook for your company's stock price
• multi-year projections for your income
• your ability to spread the recognition of income from certain sources over 2014 and 2015

Be Aware Of Tax Rates, But Don't Obsess About Them

Unless you were already definitely planning to sell company stock or exercise options soon, most experts feel that unease about higher tax rates in your future should not be the only reason for doing so at the end of the year. However, if you are considering option exercises or stock sales at year-end, you should be aware of the thresholds for higher tax rates and may want to consider keeping your income below them, if possible.

Tax rate	Yearly income threshold in 2014
Top ordinary income rate (39.6%)	Taxable income of $406,750 (single) or $457,600 (joint)
Top rate (20%) on long-term capital gains and on qualified dividends	Taxable income of $406,750 (single) or $457,600 (joint)
Medicare surtax on investment income (3.8%)	Modified adjusted gross income of $200,000 (single) or $250,000 (joint)
Additional Medicare tax on earned income (0.9%)	Earned income of $200,000 (single) or $250,000 (joint)
Phaseout of itemized deductions and personal exemptions	Adjusted gross income of $254,200 (single) or $305,050 (joint)

Year-End Strategies To Consider

Below we present several situations and some strategies that many experts suggest. Of course, you should consult a financial advisor about your individual situation. See also two other FAQs for additional ideas on exercising stock options and on selling company stock at the end of 2014.

1. You are planning to sell the stock at exercise late this year or early next year. You should calculate whether the ordinary income at exercise will push you into a higher tax bracket and/or trigger the Medicare surtax on your investment gains, and what the taxes will be if the rate for that bracket goes up. To break up the tax hit from an income spike, you may want to spread the same-day exercise/sale over the end of this year and the beginning of next year.

Alert: When you do sell company stock, reporting it on your tax return raises other issues. See the special section Reporting Company Stock Sales, with annotated examples, in the Tax Center.

2. You are over or near the yearly maximum for Social Security. The Social Security wage base for 2014 is $117,000 (it will be $118,500 in 2015). Social Security tax (6.2%) is owed only up to that income ceiling. If your yearly income is already over that threshold, you can exercise nonqualified stock options or stock appreciation rights in December without paying Social Security tax, and therefore you can keep an extra 6.2% of the related income. If you wait until January, your yearly wage base starts at $0, and Social Security tax will again apply up to the new maximum for that year.

3. Additional Medicare tax. The Medicare tax rate (normally 1.45%) is 2.35% for single filers with yearly compensation income of more than $200,000 (more than $250,000 for married joint filers). In addition, a 3.8% Medicare surtax applies to investment income, such as dividends and stock sale gains, for people in that same income range.

Alert: Unlike the tax provisions outlined in the table above, the income thresholds for triggering the Medicare surtax and the Additional Medicare Tax are not indexed for inflation. The amounts will persist unless Congress changes them.

If your multi-year projections of income show that you will trigger this surtax next year, and if you have company stock or other investments that you intend to sell soon, you may want to avoid the additional 3.8% tax by selling in 2014 rather than in 2015. Additionally, if you exercised incentive stock options during the year, are holding the ISO stock, and have plans to sell the shares after one year, you may want to evaluate the impact of higher capital gains rates, along with the Medicare surtax on investment income. This may lead you to lower taxes by selling the shares in 2014.

Many More Year-End Ideas And Strategies

For eight more ideas on year-end planning with equity compensation, see our flagship year-end FAQ, along with all of the articles and FAQs in our section Financial Planning: Year-End.

Making Year-End Donations Of Company Stock To Your Favorite Charities

The end of the year is the traditional time for donating to charities. As Santa Claus well knows, nonprofits appreciate gifts of stock as much as gifts of cash.

Timing

For year-end donations, be sure the stock transfer is completed by December 31 to make it count for the current tax year. For electronic transfers from your brokerage account, the donation is recorded on the day it is received by the charity/foundation (not when you approve the transfer). With increased year-end activity at brokerage firms, you should plan your year-end stock gifts as early as possible and have ongoing communications with your broker to ensure that the transfer takes place.

Tax Rules

For a charitable donation of company stock acquired from equity compensation, the tax treatment is the same as it is for donations of any stock to a qualified charity. (The tax treatment of gifting stock to donor-advised funds is similar to that of donating stock to qualified public charities.)

After you have held the company stock for more than one year, at the time of the donation you get a tax deduction equal to the fair market value of the stock (not to your cost basis). For stock acquired from an option exercise or an ESPP purchase, the holding period begins on the day after exercise/purchase, while for restricted stock/RSUs it starts on the day after vesting. If the sale of the appreciated shares would have triggered long-term capital gains, your deduction is up to 30% of your adjusted gross income (20% for family foundations), and you can carry forward higher amounts for five years.

Benefits

With a charitable gift of appreciated shares held long-term, the donation you make and the deduction you get are greater than they would be if you were to instead sell the shares and donate the cash proceeds. This is because when you donate shares, you avoid paying the capital gains tax.

Donation Example

Suppose you can either (1) donate $100,000 in company stock or (2) sell the stock first and donate the proceeds.

Stock: You donate $100,000 in company stock that you have held for at least one year (10,000 shares trading at $10 per share that you received at $1 per share) to a favorite charity. Your $100,000 tax deduction results in tax savings of $40,000 (assuming a 40% combined federal and state tax rate on your income).

Cash: You sell 10,000 shares, worth $100,000, and donate the cash. On your $90,000 gain ($100,000 minus the cost basis of $10,000) you pay $18,450 in taxes (15% federal capital gains tax plus the 5.5% state tax), resulting in $81,550. This amount will be lower if you trigger the 20% tax rate on capital gains and the 3.8% Medicare surtax. You get a tax deduction for the net amount of cash that you have donated. Your tax savings are $32,620 (40% of $81,550), $7,380 less than the tax savings with a donation of stock.

	Donation of stock	Donation of cash
Combined federal and state income taxes	40%	40%
Tax rate and amount for selling stock	(Not applicable)	20.5% / $18,450 (0.15 x $90,000)
Net amount to donate	$100,000	$81,500
Tax savings	$40,000	$32,620

Special Issues

If the donated shares were acquired from incentive stock options or an employee stock purchase plan, additional tax consequences occur if you donate the shares before you have met the required holding periods. (See also the FAQs on donating shares from a Section 423 ESPP after meeting the holding period, and gifting/donating ISO shares after triggering AMT.) Executives and directors will also want to review the Section 16 and Rule 144 requirements before gifting or donating company stock.

Much More Where This Came From

For other ideas on year-end planning, see the year-end articles and FAQs at myStockOptions.com.

Ho, Ho...Huh? Year-End Financial And Tax Planning For Equity Comp And Company Stock Can Be Tricky

The season of holiday songs, festive knitwear, and Christmas trees brings also the time for year-end financial and tax planning. At myStockOptions.com, we recommend promptly learning about the issues so that your yuletide year-end planning doesn't become The Nightmare Before Christmas.

Along with the planning concepts that apply at the close of every year, in 2014 people with equity comp and company shares will want to consider the ongoing impact of the tax-rate changes that took effect in 2013 under the American Taxpayer Relief Act and the Affordable Care Act. Timely year-end guidance is particularly important for people who are considering option exercises or stock sales at the end of 2014. Employees with equity grants and company shares should be aware of the new 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. Beyond these issues, other planning conundrums may arise for people with stock options, restricted stock, or restricted stock units, and for participants in employee stock purchase plans.

Fortunately, the year-end articles and FAQs at myStockOptions.com provide helpful education and guidance on major issues, decisions, and innovative financial-planning strategies for the end of 2014 and the start of 2015. Here is our short guide to holiday reading for people with equity compensation and company stock:

• 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

• 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 ordinary income next year will trigger the 3.8% Medicare surtax on investment income, along with higher tax rates on capital gains and dividends. If I were to sell some stock this year, I would avoid these taxes, and I would then repurchase the stock to reset the basis. What are the issues I need to consider?

Alongside these 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?

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 sister publication of myStockOptions.com.

Decision Time For Nonqualified Deferred Compensation: Top Issues For Plan Participants Choosing Salary Deferrals For The Year Ahead

This is a high-traffic time of year for our sibling website myNQDC.com, a comprehensive resource on nonqualified deferred compensation (NQDC). The fourth quarter of the year, and especially November and December, is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. Participants in NQDC plans choosing how much of next year's salary to defer can find plenty of guidance at myNQDC.com on issues to consider.

In the analysis for deferrals to make in 2015, one ongoing issue stems from the tax increases that took effect in 2013, including the additional Medicare taxes for high earners. Other points to consider include the following.

1. Maximizing the amount you can contribute to your 401(k) plans. You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security. If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes.

To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Alert: Because of the NQDC election rules, participants should carefully consider elections. The rules of IRC Section 409A severely restrict the ability to make changes in NQDC deferrals.

Consider Limits On Contributions To Qualified Plans

Influencing year-end decisions about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

Contribution type/limit	2015	2014
Compensation allowed in qualified deferral and match calculation	$265,000	$260,000
Elective compensation deferrals	$18,000	$17,500
Catchup contributions for people aged 50 or older	$6,000	$5,500
Total defined contribution limits (employee and employer contributions)	$53,000 + catchup contribution	$52,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$210,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$170,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$115,000

Increase In Social Security Wage Base

Additionally, the Social Security Administration (SSA) annually increases the wage base used for calculating the Social Security part of FICA taxes, which are owed at NQDC deferral or vesting. In 2015, the Social Security wage cap will be $118,500 (up from $117,000 in 2014). With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2015 is $7,347.

According to the SSA announcement that released these figures, among the estimated 168 million workers in the United States who pay Social Security tax, about 10 million will see an increase in Social Security tax in 2015 because of the increase in the wage base. We can assume that everybody with nonqualified deferred compensation will be among those 10 million people.

Year-End Financial And Tax Strategies For Restricted Stock, RSUs, And Stock Options

Like tastes in colorful holiday sweaters, year-end financial and tax planning is very specific to the individual. Decisions in your year-end planning for stock compensation and company shares depend on many personal factors:

• your financial situation, including the short-term need to sell stock and/or exercise stock options
• whether your decisions should be entirely tax-driven
• what you did earlier in the year
• your outlook for your company's stock price
• multi-year projections for your income

Unless you were already definitely planning to sell company stock or exercise options soon, most experts feel that unease about higher tax rates in your future should not be the only reason for doing so at the end of the year. However, if you are considering option exercises or stock sales at year-end, you should be aware of the thresholds for higher tax rates and may want to consider keeping your income below them, if possible.

Tax rate	Yearly income threshold
Top ordinary income rate (39.6%)	Taxable income of $400,000 (single) or $450,000 (joint)
Top rate on capital gains and qualified dividends (20%)	Taxable income of $400,000 (single) or $450,000 (joint)
Medicare surtax on investment income (3.8%)	Modified adjusted gross income of $200,000 (single) or $250,000 (joint)
Additional Medicare tax on earned income (0.9%)	Earned income of $200,000 (single) or $250,000 (joint)
Phaseout of itemized deductions and personal exemptions	Adjusted gross income of $250,000 (single) or $300,000 (joint)

Below we present several situations and some strategies that many experts suggest. Of course, you should consult a financial advisor about your individual situation. See also two other FAQs at myStockOptions.com for additional ideas on exercising stock options and on selling company stock at the end of 2013.

1. You are planning to sell the stock at exercise late this year or early next year. You should calculate whether the ordinary income at exercise will push you into a higher tax bracket and/or trigger the Medicare surtax on your investment gains, and what the taxes will be if the rate for that bracket goes up. To break up the tax hit, you may want to spread the same-day exercise/sale over the end of this year and the beginning of next year.

Alert: When you do sell company stock, reporting it on your tax return raises other issues. See the special section Reporting Company Stock Sales, with annotated examples, in the Tax Center at myStockOptions.com.

2. You're over or near the yearly maximum for Social Security. If your income at year-end already exceeds the Social Security wage base for the year ($113,700 in 2013 and $117,000 in 2014), by exercising nonqualified stock options or stock appreciation rights in December you can avoid Social Security tax and keep that 6.2% of the income. If you wait until January, your yearly wage base starts at $0, and the Social Security tax will again apply on the exercise spread and the vesting value of restricted stock up to the new maximum for that year.

3. Additional Medicare tax. In 2013, the Medicare tax rate rose to 2.35% for single filers with yearly compensation income of more than $200,000 (more than $250,000 for married joint filers). Also starting in 2013, a new 3.8% Medicare surtax now applies to investment income, such as dividends and stock sale gains, for people in that income range.

Alert: Unlike the tax provisions outlined in the table above, the income thresholds for triggering the Medicare surtax and the Additional Medicare Tax are not indexed for inflation. The amounts set for 2013 will remain for future years unless Congress changes them.

If your multi-year projections of income show that you will trigger this surtax next year, and if you have company stock or other investments that you intend to sell soon, you may want to avoid the additional 3.8% tax by selling in 2013 rather than in 2014. Additionally, if you exercised incentive stock options during the year, are holding the ISO stock, and have plans to sell the shares after one year, you may want to evaluate the impact of higher capital gains rates, along with the new Medicare tax on investment income. This may lead you to lower taxes by selling the shares in 2013.

For seven more ideas on year-end tax and financial planning, see our flagship FAQ on these topics and all of the other year-end articles and FAQs at myStockOptions.com.

Financial Advisors Present Year-End Planning Ideas For Stock Comp And Company Stock Holdings

Year-end planning for stock compensation and company stock holdings can be tricky—and  never more so than now, amid the tax-rate changes that took effect in 2013. To explore the related issues in a helpful way, we asked five financial advisors for their ideas on financial and tax planning for either the end of 2013 or the start of 2014. Published in their own words, their comments are presented in an exclusive new article at myStockOptions.com that is available free to all website visitors.

The planning ideas from the advisors include the following:

Watch income thresholds that trigger higher taxes. Taxpayers with yearly income above certain thresholds ($250,000 for married joint filers and $200,000 for single filers) are subject to two ObamaCare-related tax increases that began in 2013: the 0.9% additional Medicare tax on wage income and the 3.8% Medicare surtax on net investment income, both introduced by the American Taxpayer Relief Act. Income from stock option exercises can push your total yearly income above the thresholds and thus trigger the additional taxes—something to watch for when deliberating whether to exercise options before the end of this year or wait until next year.

Roth IRA conversions in January optimize your ability to recharacterize the conversion later if necessary. The rules for Roth IRA conversions let you recharacterize (i.e. "undo") a conversion, a move that makes sense if the value of the Roth IRA has decreased significantly. You can recharacterize the conversion at any time before the tax filing becomes final for the year of conversion. For conversions in 2014, that timeframe can stretch until October 2015 (if you have filed a six-month extension of your tax-return deadline). Therefore, if you convert in early January you will have 21 months to measure the Roth's performance and decide whether to keep or undo the conversion. (Your stock compensation can help to pay the additional tax you will owe because of the Roth conversion—for details, see an article series on myStockOptions.com.)

January is the time to exercise incentive stock options (ISOs). The exercise of ISOs begins the holding period of 12 months from the exercise date and 24 months from the grant date that must be met to achieve the favorable long-term capital gains tax treatment at sale that makes ISOs particularly beneficial. Exercising in January gives you the maximum length of time to watch the stock price and decide whether to continue the holding period into the following year or sell the shares before year-end to avoid problems with the alternative minimum tax (AMT). If the stock price falls, selling before December 31 would trigger a short-term gain or loss but would avoid AMT liability. If the stock price has risen by year-end, keeping the shares into the next year to meet the holding period would confer the favorable tax treatment on the long-term gain at sale. While this approach could trigger the AMT, the financial gain would probably outweigh the tax liability (but obtain guidance from your own advisor, and see our FAQ with ideas for minimizing the AMT).

Holding company stock for a while longer? Consider harvesting gains. If you plan to hold your company stock for a few years or more, consider harvesting the gain by selling the appreciated position and then buying back the investment, thereby resetting the cost basis higher to help with future sales. Keep in mind that the wash sale rules apply only to losses. The shorter the period between the gain-harvesting sale and your second long-term capital gains sale, the more favorable the gain-harvesting becomes. Additionally, the greater the difference between your 2013 tax rate and the tax rate when you resell the stock, the greater your potential return from this strategy.

Consider whether your current financial holdings are too concentrated in one stock. The recent strong equity markets may have had the unintended effect of increasing your concentration in company stock relative to your overall portfolio. Year-end can be a good time to reduce your exposure to concentration risk.

Prepare for the impact of upcoming job changes or life events. Executives contemplating job transitions or retirement during the year ahead should consider the effects on the potential after-tax value of stock awards. The impact could even result in the forfeiture of all vested and unvested grants. Review your employer stock award notices to assess what grants will be forfeited upon separation, which grants will vest immediately, which will vest in accordance with the original schedule, which will retain their original term, or which will suffer a truncated term. Your latitude to negotiate may be limited, but you should at least understand the rules so that your financial planning can be adjusted accordingly.

For year-end-planning insights from two other respected financial advisors, see two other articles at myStockOptions.com: Stockbrokers' Secrets (Part 3): Year-End Planning For NQSOs, Restricted Stock, And RSUs and Stockbrokers' Secrets (Part 7): Year-End Planning For ISOs. For yet more ideas on year-end planning, see the FAQs in our section on year-end planning.