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Income Optimization

The Proper Strategy for Stock Option Sales

Stock Options and Restricted Stock Units can be a valuable part of your compensation; it is essential to know how to make the best use of these options.

Stock Options and Restricted Stock Units can be a valuable part of your compensation; it is essential to know how to make the best use of these options.

For many, stock options are awarded as a bonus or profit-sharing award. Each year more than 10% of the granted stock options go unexercised. Employees often sell their vested shares and miss out on potential future appreciation. Other mistakes include not protection gains after stocks have appreciated or waiting to the last minute to exercise their options. Tax considerations are a critical component of properly using your stock options. If you do not plan for taxes until they are due, you may end up with a large tax bill. In addition, options and Restricted Stock Units (RSUs) come with unique risks, and it is important to ensure that the portfolio holding your options is well diversified.

These considerations can be overwhelming; however, Johansen and Yau’s advisors are uniquely skilled at helping you manage your stock options most effectively. We do this by assisting you in creating a stock option/RSU selling strategy. To make this strategy, we look at several essential factors, asking specific questions, before deciding if selling your options is the best action. We specifically ask:

  1. Why do you want to sell your options?
  2. What is your company’s outlook?
  3. Does your employer require you to hold company stock?
Tax Impact: Selling Your Vested RSUs

Tax Impact: Selling Your Vested RSUs

Perhaps the most critical component of an RSU selling strategy is understanding the tax treatment of your shares. It is essential to know:

  • When your options become vested, they are treated as income by the IRS, and you will be liable for income tax on the value of your shares.
  • You can withhold shares from your options to minimize the taxes you are responsible for.

If your stock’s value goes up from the time your RSUs vest and when you sell them, you will be responsible for capital gains.

Ways to Sell your RSUs

When it comes to selling your options, there are several methods for doing so. You can sell them immediately, sell some, keep some, hold on to your shares, sell shares systematically, or use an exchange fund strategy. At Johansen and Yau, we can help you understand what approach is best for you and remove the mystery and confusion of owning stock options. 

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