Author Topic: Company Stock Grants and Taxes  (Read 1323 times)

WhatFreshHell

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Company Stock Grants and Taxes
« on: March 19, 2018, 07:26:50 AM »

I have stock grants that have been vesting for a while. The dollar value is growing to the point where it is significant enough that I'd like to cash them out and put them into VTSAX.

Is there a recommended way of doing this where the taxes would be minimal?

Would it be better to do it in stages, only a certain amount each year?

I'm worried about losing value in the tax bracket I'm in as opposed to when I'm in FIRE where I should be in a lower tax bracket.

Thanks in advanced for any feedback!

ZiziPB

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Re: Company Stock Grants and Taxes
« Reply #1 on: March 19, 2018, 08:53:44 AM »
The best way to do it with stock grants is to sell the stock as soon as it vests and invest the proceeds in accordance with your preferred AA.  But it sounds like you have not done that. 

If you want to sell the stock now, the usual capital gains tax rules apply - if you've held the stock for less than a year, any gains are taxed as regular income, if over a year, you pay long term capital gains tax.  The starting value is the value as of the vesting date. 

Check the lots you own and determine if they are short term or long term and how much you have in gains for each lot.  Then you can come up with an exit plan that minimizes taxes.

MDM

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Re: Company Stock Grants and Taxes
« Reply #2 on: March 19, 2018, 08:58:39 AM »
Is there a recommended way of doing this where the taxes would be minimal?

Would it be better to do it in stages, only a certain amount each year?
You can minimize taxes, at least for a while, by
1. Ensuring your account is set up to use specific lot ID as a cost basis, not average cost.
2. Selling the highest cost lots first

You should look at the marginal rates you will pay for different amounts of capital gains to answer the "stages vs. all at once" question.

If the above suffices - good luck!  If some of the buzzwords don't make sense - just ask!

WhatFreshHell

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Re: Company Stock Grants and Taxes
« Reply #3 on: March 19, 2018, 09:14:08 AM »
The best way to do it with stock grants is to sell the stock as soon as it vests and invest the proceeds in accordance with your preferred AA.  But it sounds like you have not done that. 

If you want to sell the stock now, the usual capital gains tax rules apply - if you've held the stock for less than a year, any gains are taxed as regular income, if over a year, you pay long term capital gains tax.  The starting value is the value as of the vesting date. 

Check the lots you own and determine if they are short term or long term and how much you have in gains for each lot.  Then you can come up with an exit plan that minimizes taxes.

Ok, I think they are all long term at this point. I will check on that... I'm also pretty sure they'll all be large gains.

Is there a recommended way of doing this where the taxes would be minimal?

Would it be better to do it in stages, only a certain amount each year?
You can minimize taxes, at least for a while, by
1. Ensuring your account is set up to use specific lot ID as a cost basis, not average cost.
2. Selling the highest cost lots first

You should look at the marginal rates you will pay for different amounts of capital gains to answer the "stages vs. all at once" question.

If the above suffices - good luck!  If some of the buzzwords don't make sense - just ask!

Ok, Selling high cost first is better.  If they are all the same, should I just sell everything?  Does it even make sense to hold any of it to minimize tax burden or will it all be the same in tax percentage and the only change will be whatever the stock price changes in the next year or so?

I'm definitely going to be watching when any new ones vest to make sure to cash them immediately.

Thanks for the responses!

MDM

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Re: Company Stock Grants and Taxes
« Reply #4 on: March 19, 2018, 09:36:51 AM »
If they are all the same, should I just sell everything?  Does it even make sense to hold any of it to minimize tax burden or will it all be the same in tax percentage and the only change will be whatever the stock price changes in the next year or so?
That depends on your other income and where you are in relation to tax brackets, phaseouts, etc.  In other words, how would different amounts of capital gains affect the marginal rate you would pay?

WhatFreshHell

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Re: Company Stock Grants and Taxes
« Reply #5 on: March 19, 2018, 12:16:17 PM »
If they are all the same, should I just sell everything?  Does it even make sense to hold any of it to minimize tax burden or will it all be the same in tax percentage and the only change will be whatever the stock price changes in the next year or so?
That depends on your other income and where you are in relation to tax brackets, phaseouts, etc.  In other words, how would different amounts of capital gains affect the marginal rate you would pay?

Good point.  My cursory glance at the numbers looks like I wouldn't actually be going up a tax bracket. If anything I think it just would make it harder to go down through deductions at the end of the year.

Something I forgot to mention in the original post is these are RSUs, so I have to wait for the window to do anything. That being said, I think from the feedback so far I have made up my mind. Now just have to wait for the open window.

Thanks!

SugarMountain

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Re: Company Stock Grants and Taxes
« Reply #6 on: March 25, 2018, 03:03:38 PM »
Are these RSUs (actual stock) or options (ISOs or NQSOs)? Each of those have different tax treatment.

WhatFreshHell

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Re: Company Stock Grants and Taxes
« Reply #7 on: March 25, 2018, 03:24:23 PM »
Are these RSUs (actual stock) or options (ISOs or NQSOs)? Each of those have different tax treatment.

RSUs.