Tax Compliance and Planning For Individuals

Question 1

Restricted Stock Units (RSUs)

Answer 1

Promise to give employee a set number of shares or cash equivalent on a future date. Taxed when they vest. Value of shares on the vesting date is taxed as ordinary income.

Question 2

Stock Options

Answer 2

Incentive Stock Options (ISOs) - capital gains tax upon sale. Bargain element possibly subject to AMT.

Non-qualified Stock Options (NSOs) - difference between mkt price on date of exercise and strike is taxable when exercised.

Question 3

Employee Stock Purchase Plans (ESPPs)

Answer 3

Allows employees to purchase company stock at a discount through payroll. Discount is considered taxable income. Further taxation when sold.

Question 4

Impact of selling stock options

Answer 4

ISOs - holding at least 1 yr from exercise date and 2 yrs from grant date qualifies for LTCG rates.

NSOs, ESPPs, & RSUs - difference between sale price and stocks value at time of exercise/purchase. Typically ST/LT capital gains/losses

Question 5

Alternative Minimum Tax (AMT)

Answer 5

Add back some deductions:

-Personal and standard deductions
-State and local taxes deducted on regular tax return.
-Misc itemized deductions no longer allowed.
-Interest on some private activity bonds.

ISOs - if exercised but not sold, the difference between stock’s mkt value and exercise price is a positive AMT adjustment.

Depreciation - recalculate accelerated using SL.

26% or 28% tax rates