Equity Compensation & Stock Options
Specialized Tax and Financial Planning Solutions for Executives with Stock Options, RSUs and Performance Grants
Many executives feel a strong emotional connection to their companies and believe in the long-term success of their company stock. This belief, along with equity compensation packages, motivates executives to actively growth their companies. However, this emotional connection can also be detrimental if it causes an executive to hold an excessive amount of company stock without considering their overall portfolio risk level and tax implications of stock options and grants.
Diversification of Company Equity Positions: Why It Matters
High-level corporate executives are often encouraged to maintain highly-concentrated positions in their company’s stock. For the CEO and top officers of public companies, selling company stock may be difficult since all transactions are reviewed closely by analysts and it does not reflect well upon the stock if insiders are selling. However, for most corporate executives, diversification away from company stock is critical to effectively managing their risk.
Diversification is not an ‘all or nothing’ game and owning a certain level of company stock and options often makes sense. It may even be unavoidable if you are not yet fully vested or are required to hold a certain amount of stock as a way of showing public support. In every case, there are diversification strategies that can be implemented within one’s portfolio that can help manage the risk of owning your company’s stock.
At Integrity Financial Partners, Inc. (IFP), we work closely with our clients to understand their reasons for holding the stock as well as their ultimate financial and personal goals, and then develop and implement a plan that is right for their individual situation.
How Are Stock Options Taxed
The tax consequences of restricted stock grants and stock options are complex, but important to grasp when making investment decisions. Many executives are subject to alternative minimum tax (AMT), which further complicates the treatment of stock options and can mean incurring tax liability at the time of the option being exercised, often before any proceeds are even realized. For example, during the dot-com bubble and the 2008 financial crisis, many executives were frustrated by the fact they owed taxes on worthless stock options.
Once restricted stock or stock options are received, executives have to make a myriad of decisions, all of them impacting their stock option taxes. It is critical to one’s financial success to balance these consequences against the need for diversification and the desire to meet other financial planning goals. The best way to accomplish this is by developing a comprehensive investment plan that can evaluate your overall financial position.
How Integrity Makes a Difference
Integrity Advisory Partners LLC (IAP), a wealth management firm founded by two experienced investment industry professionals, specializes in tax-efficient investing -- minimizing taxes while maximizing investment gains and preserving wealth. Our tax, accounting and finance expertise fulfills the sophisticated requirements of our executive and high-net-worth clients. Skilled in stock ownership, stock option taxes, restricted stock, and related tax transactions, we understand the challenges and opportunities associated with these situations, and are uniquely qualified to evaluate and plan for all possible tax and financial consequences.
Our approach represents the best of both worlds: an accounting firm that delivers sophisticated tax advice and a wealth management firm that develops and manages a portfolio designed to meet your short- and long-term financial objectives. IFP proves most valuable to high-net-worth individuals and executives with complex tax and investment circumstances. Those who continually need to assess highly-correlated corporate assets and risk, diversify portfolios, project the tax consequences of different restricted stock and performance program scenarios, and minimize the impact of new tax increases truly appreciate the value we bring to the table. .