Equity Compensation Planning

Navigating Stock Options, RSUs, and Concentrated Equity.

Equity compensation can be one of the most powerful drivers of wealth for professionals in the technology sector. It can also introduce significant complexity — particularly when it comes to taxes, diversification, and long-term financial planning. Stock options, restricted stock units, and company equity often represent a large portion of total compensation. Understanding when to exercise, when to sell, and how those decisions affect taxes and portfolio risk requires careful coordination.

At Johanson & Yau, equity compensation planning integrates tax strategy, investment planning, and long-term financial goals so clients can make informed decisions about their equity awards.

Equity Compensation Explained

Understanding Equity Compensation

Equity compensation comes in several forms, each with different tax treatment and planning considerations.

Restricted Stock Units (RSUs)

RSUs are one of the most common forms of equity compensation in technology companies. Shares are typically granted and then vest over time. When RSUs vest, their value is generally taxed as ordinary income. After vesting, any additional gain or loss depends on when the shares are sold. Planning around RSUs often involves evaluating how vesting schedules affect income, taxes, and portfolio concentration.

Incentive Stock Options (ISOs)

ISOs can provide favorable tax treatment under certain conditions, but they also introduce potential exposure to the Alternative Minimum Tax (AMT). Decisions about when to exercise and when to sell shares can significantly influence tax outcomes. These decisions should be evaluated alongside overall financial goals and liquidity needs.

Non-Qualified Stock Options (NSOs)

NSOs are typically taxed as ordinary income when exercised. The timing of exercise and sale can influence both tax exposure and portfolio diversification. Planning strategies often focus on coordinating exercise decisions with income levels, tax planning opportunities, and broader investment goals.

Managing Concentrated Stock Positions

Many professionals accumulate large positions in their employer’s stock over time. While this can create meaningful wealth, it can also introduce risk if a large portion of a portfolio becomes tied to the performance of a single company.

Diversification planning helps clients evaluate how concentrated positions fit within their broader investment strategy and long-term financial goals.

Planning Around IPOs and Liquidity Events

Initial public offerings and other liquidity events can significantly change a client’s financial picture. Lock-up periods, tax implications, and sudden changes in net worth often require careful planning before and after a liquidity event.

Preparing for these events can help clients evaluate diversification strategies, tax considerations, and how new wealth fits into a long-term financial plan.

Equity Compensation and Tax Planning

Equity compensation decisions often carry significant tax consequences. The timing of option exercises, vesting schedules, and stock sales can influence income levels and long-term tax exposure.

Because Johanson & Yau works alongside a CPA firm, tax considerations are integrated into the planning process from the beginning. This perspective allows equity compensation decisions to be evaluated in the context of a broader financial strategy.

Frequently Asked Questions

What is equity compensation planning?

Equity compensation planning involves evaluating stock options, restricted stock units, and other forms of company equity within the context of taxes, diversification, and long-term financial planning.

When should I sell company stock?

The decision to sell company stock depends on several factors, including tax considerations, diversification goals, and long-term financial priorities.

How are RSUs taxed?

RSUs are typically taxed as ordinary income when they vest. Any additional gains or losses after vesting are generally treated as capital gains or losses depending on when the shares are sold.

Planning around Equity Compensation Starts with the Right Strategy.

Equity compensation decisions can influence taxes, diversification, and long-term financial planning. A conversation can help you evaluate how stock options, RSUs, and concentrated equity fit into your broader financial strategy.

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