Financial Planning › High Net Worth

Executives and key employees with equity comp must sell company shares to meet financial goals but also need to avoid insider trading. A prearranged Rule 10b5-1 trading plan for automatic, periodic buying and selling can offer protection. This article has insights from experts on how to use these plans safely and effectively.

Podcast included! Understand the key issues and limits of hedging NQSOs, including company, SEC, and tax law constraints. Then you can analyze potential hedging strategies for your stock options, such as collars.

Due to annual inflation-indexing, the historically high lifetime exemption amount for gift, estate, and generation-skipping transfer taxes increased in 2023. High-net-worth people who have not yet made gifts, such as gifts of company shares, to use their lifetime exemption may wish to think about lifetime gift strategies to execute this year. This article, by an attorney with extensive experience in estate planning, discusses ideas to consider.

UPDATES! For US taxpayers with overseas assets and/or income, the reporting rules are complicated, and mistakes can lead to costly penalties. This article summarizes some of the most important reporting rules.

Podcast included! Taxation for internationally mobile employees can be extremely complex. Part 1 introduces the key cross-border topics you must know about equity compensation, including the sourcing and apportioning of income.

Podcast included! Moving between US states, whether to relocate permanently, travel for business, or retire, can involve tax complications for people who have stock compensation. This article presents the tax issues that you may encounter when you leave your home office and cross a state line.

Podcast included! For some employees, the value of their equity compensation plans represents their largest investment. With so much at stake, making the right decisions is critical. Intelligent planning can maximize value while minimizing risk.

Podcast included! Taxation for internationally mobile employees can be extremely complex. Part 2 looks at specific scenarios, withholding taxes, and tax equalization.

Podcast included! All publicly traded companies face the risk that an executive or employee may violate corporate, tax, or securities laws. This article series outlines practices for executives to help them avoid compliance problems, and explains the possible penalties of noncompliance. Part 2 presents issues involving foreign financial interests, nonresident state tax returns, retirement plan funding, company rules, and more.

If you must pay the alternative minimum tax (AMT), the best move may be to increase income and pay even more AMT! Find out why by reading this surprising analysis.

Having both nonqualified stock options and nonqualified deferred compensation gives you a tremendous amount of flexibility to optimize your financial planning and tax situation. In this article, I explain how I have used the two plans in concert with one another.

Some significant tax and estate-planning opportunities—and traps—exist for foreign executives who come to the United States to work (and when they leave too). This article outlines the principal areas of concern.

If the majority of your net worth lies in unexercised stock options or company stock, it may make sense to sell a portion to reduce the concentration risk while holding on to a portion to participate in future appreciation. However, if most financial goals can be reached without these proceeds and your position is not heavily concentrated, other strategies are worth exploring. One that is gaining popularity is writing call options on vested ESOs to generate some income.

Podcast included! Market volatility has made many high-net-worth executives want to hedge their exposure to concentrated positions in company stock. Unfortunately, most of the tools for hedging are not very efficient with NQSOs. Part 2 in this series examines alternative approaches.

Podcast included! A regulatory change in 2009 by the SEC now lets unexercised employee options act as collateral for listed publicly traded options. Learn about the rules, possibilities, and limits of this technique.

Podcast included! After understanding hedging basics, you need to answer a few questions and decide whether your goals go beyond risk reduction to liquidity creation.

Podcast included! After learning the basic rules and restrictions, you now need to decide on the appropriate hedging tool and understand variable forwards and the final issues to consider in crafting your hedging strategy.

UPDATED! You may have employee stock options with a large spread but don't need the money, and you may want to defer the tax upon exercise as long as possible. But you also want to minimize your risk of owning a single stock. Learn about the possibility of substituting a nonqualified deferred compensation plan for your unexercised options.

Podcast included! Hedging stock from exercises of incentive stock options (ISOs) is complex, but it is possible in certain situations. Financial engineering can create a floor under the ISO stock while letting the capital gains holding period continue.

UPDATES! Finding legal techniques to minimize taxes is almost as popular in the US as stock compensation. These sophisticated techniques with founder's stock and options can defer or reduce taxes. Qualified small business stock (QSBS) is the most famous.

UPDATES! You want to defer gain on the sale of publicly traded securities, but they do not qualify as qualified small business (QSB) stock. Here's another way to defer tax on those holdings.

This interactive article presents the compensation and wealth accumulation of CEOs at many large companies. The figures, including the value of stock and options awards, are calculated from companies' proxy statements.

The IRS tips its hand on what its agents look for in audits related to all types of stock pay to ensure compliance, whether by corporations or executives.

Revised in June 2021, this IRS manual summarizes the taxation of nonqualified deferred compensation, which can include certain types of equity awards, and identifies hot spots for IRS review. For more about nonqualified deferred compensation, see our sibling website myNQDC.com.

Yes, significantly. In addition, fluctuations of income, which can be caused by stock compensation, are a red flag that can trigger an audit. According to research...

In effect from the start of 2018, the Tax Cuts & Jobs Act has provisions that directly and indirectly affect stock compensation...

Under the FBAR and FATCA rules, you may have special IRS reporting requirements if you hold assets in a bank outside the US. This FAQ explains the requirements and the severe penalties that the IRS imposes for noncompliance...

If you are a US resident at the time of exercise, the options are taxable in the United States, so you will owe federal tax on...

Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other payments that are reported on...

If you are a nonresident alien and do not complete and file Form W-8BEN with the IRS upon receiving stock-sale proceeds, such as those stemming from equity awards, your brokerage firm will assess backup withholding on the proceeds. To reclaim backup withholding, take the following steps...

Although stock ownership guidelines are more common, retention mandates and requirements for CEOs and senior executives have become popular, as shown by survey data and corporate proxy statement disclosures. Supporters of share retention rules believe they show...

Directors of large public companies are often paid in equity awards as well as in cash, though with a different incentive strategy than in the stock comp granted to senior executives. Surveys by research and consulting firms show corporate trends...

The value of an option consists of two elements: time premium and intrinsic value. Intrinsic value is the difference...

At some companies, international assignments are often accompanied by what is commonly called an "equalization package." To give you an incentive to accept the international assignment, the company agrees to...

If the company's stock price goes up and you remain employed with the company, you can benefit handsomely from this leverage technique. On the other hand, if the company's stock price falls, or if the company's stock price is volatile, the strategy may be risky and can even prove disastrous...

Brokers are allowed by Regulation T of the Federal Reserve to lend up to 50% of a stock's market price on the day of the loan...

SEC Rule 10b5-1 provides a defense against charges of insider trading if you later trade stock while you know confidential, important information about your company. A Rule 10b5-1 trading plan is a program for the preset purchase and/or sale of your stock that meets the requirements of this SEC rule, including the need to...

Your estate-planning opportunities are more effective with company stock than with options. As a general rule, the contribution of the stock options themselves to a CRT is rather...

Most stock plans do not permit this for stock options or restricted stock during your life (i.e. transferable only at death), or they allow it only...

A clawback provision can appear in your employment agreement, stock grant agreement, or stock plan. If it is triggered, you must surrender to the company...

Clawback forfeiture provisions usually do not appear in stock plans. Typically, they are included in stock grant agreements, which tend to be not publicly available. This makes data on clawbacks hard to find. However, a survey...

The tax treatment that applies when you have a clawback provision or when a clawback is enforced is an evolving area that is gradually being clarified...

One resource is the SEC's website. There you can search on the SEC's EDGAR system for the filings discussed below. Another resource is the...

A number of tax law provisions and interpretations that may affect your stock grants occur in...

It has become easier to sell call options on your vested employee stock options. This creates both an income-producing opportunity and a hedging strategy, if you are allowed to do this and you understand the risks...

Don't confuse restricted securities and restricted stock. They are very different...

SEC Rule 10b5-1 now provides an affirmative defense...

During any 401(k) blackout period, directors and executive officers...

Using a blind trust goes beyond the protections of Rule 10b5-1 plans, yet has more restrictions. These are irrevocable grantor trusts with...

The SEC's Division of Enforcement has been investigating executives' reporting of certain derivative securities transactions. When you enter into a hedging type of transaction, such as collars or prepaid variable forward contracts, you need to...

This depends on the approach you take. For most taxpayers, qualified dividends are taxed at a top rate of...

The put options you buy give you the right to sell the stock at a price you choose. With call options you are selling the right to someone else to "call away" the stock you own. The IRS ruled that the...

Section 162(m) of the tax code limits a public company's deduction for each "covered employee" in the year of income recognition to $1 million. In 2018, the Tax Cuts & Jobs Act (TCJA) eliminated...

This is a special feature included in a stock option at the time of grant. It provides for...

Under a limited number of stock plans, it used to be possible to defer delivery of shares, and related taxes, to some time after exercise or vesting. However, under Section 409A of the Internal Revenue Code, this type of deferred compensation is...

Yes, but the arrangement must be carefully structured not to be considered a stock option or nonrecourse loan...

Yes. Section 16(a) of the Securities Exchange Act of 1934 provides that every person who is a director or executive officer (or a 10% beneficial owner) of a public company must file periodic reports of stock ownership with the SEC...

Having recoverable profits under Section 16(b) for a matching purchase or sale within six months does not mean that you will report the same amount as income for taxes. You calculate the profits under Section 16(b) differently...

To satisfy Rule 144, you must follow the resale rules for...

Be very careful, as IRS actions and new rules have essentially shut down the use of these techniques. Before recent developments, some tax planners advised...

Yes. Your intentions do not matter under the securities laws. You cannot...

Receiving deferred stock units, or RSUs that let you delay the delivery of shares (and thus taxes) at vesting, depends on...

Yes, but it depends on your income and financial net worth. Under IRC Section 877A, an expatriation tax applies to US citizens who...