Year-end strategies for restricted stock, RSUs, and stock options
Issues to consider before exercising stock options at year-end
Special articles on year-end financial and tax planning
Changes to IRS Form 1099-B will add to cost-basis confusion on upcoming tax returns
Year-end deferral decisions with nonqualified deferred comp
Continuing education credits at and


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Year-end planning for stock compensation and company stock holdings can be tricky amid the ongoing impact of the tax-rate changes that took effect in 2013. Fully updated, our content section Year-End Planning presents ideas and strategies that can help you make smarter decisions and better understand the key issues. In the newsletter below, we present two of our many year-end FAQs, a list of our exclusive year-end articles, and various other items of interest to the users of

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Two FAQs On Year-End Planning In 2014

What are some year-end strategies for restricted stock, RSUs, and stock options?

Decisions in year-end financial and tax planning depend on:

  • your financial situation, including the short-term need to sell stock and/or exercise stock options
  • whether your decisions should be entirely tax-driven
  • what you did earlier in the year
  • your outlook for your company's stock price
  • multi-year projections for your income

Unless you were already definitely planning to sell company stock or exercise options soon, most experts feel that unease about higher tax rates in your future should not be the only reason for doing so at the end of the year. However, if you are considering option exercises or stock sales at year-end, you should be aware of the thresholds for higher tax rates and may want to consider keeping your income below them, if possible.

Tax rate Yearly income threshold in 2014
Top ordinary income rate (39.6%) Taxable income of $406,750 (single) or $457,600 (joint)
Top long-term capital gains rate (20%) Taxable income of $406,750 (single) or $457,600 (joint)
Medicare surtax on investment income (3.8%) Modified adjusted gross income of $200,000 (single) or $250,000 (joint)
Additional Medicare tax on earned income (0.9%) Earned income of $200,000 (single) or $250,000 (joint)
Phaseout of itemized deductions and personal exemptions Adjusted gross income of $254,200 (single) or $305,050 (joint)

Below we present several situations and some strategies that many experts suggest. Of course, you should consult a financial advisor about your individual situation. See also two other FAQs for additional ideas on exercising stock options and on selling company stock at the end of 2014.

1. You are planning to sell the stock at exercise late this year or early next year. You should calculate whether the ordinary income at exercise will push you into a higher tax bracket and/or trigger the Medicare surtax on your investment gains, and what the taxes will be if the rate for that bracket goes up. To break up the tax hit from an income spike, you may want to spread the same-day exercise/sale over the end of this year and the beginning of next year.

Alert: When you do sell company stock, reporting it on your tax return raises other issues. See the special section Reporting Company Stock Sales, with annotated examples, in the Tax Center (now being updated for the upcoming tax-return season).

2. You are over or near the yearly maximum for Social Security. The Social Security wage base for 2014 is $117,000 (it will be $118,500 in 2015). Social Security tax (6.2%) is owed only up to that income ceiling. If your yearly income is already over that threshold, you can exercise nonqualified stock options or stock appreciation rights in December without paying Social Security tax, and therefore you can keep an extra 6.2% of the related income. If you wait until January, your yearly wage base starts at $0, and Social Security tax will again apply up to the new maximum for that year.

3. Additional Medicare tax. The Medicare tax rate (normally 1.45%) is 2.35% for single filers with yearly compensation income of more than $200,000 (more than $250,000 for married joint filers). In addition, a 3.8% Medicare surtax applies to investment income, such as dividends and stock sale gains, for people in that same income range.

Alert: Unlike the tax provisions outlined in the table above, the income thresholds for triggering the Medicare surtax and the Additional Medicare Tax are not indexed for inflation. The amounts will persist unless Congress changes them.

If your multi-year projections of income show that you will trigger this surtax next year, and if you have company stock or other investments that you intend to sell soon, you may want to avoid the additional 3.8% tax by selling in 2014 rather than in 2015. Additionally, if you exercised incentive stock options during the year, are holding the ISO stock, and have plans to sell the shares after one year, you may want to evaluate the impact of higher capital gains rates, along with the Medicare surtax on investment income. This may lead you to lower taxes by selling the shares in 2014.

4. Examine standing orders. Year-end is a popular time to sell stock, but you should be aware of yet another tax change that can hurt you later, when you file your tax return. In light of the changes in cost-basis reporting, consider whether to modify any default standing order in your account for the shares to use at sale. This is particularly important for stock you have acquired from option exercises, restricted stock/RSU vesting, or market purchases at various times (i.e. the tax basis varies). Otherwise, the default order will automatically be "first in, first out" (FIFO) when you sell the company stock.

Under the new rules, a standing order can be changed only up to the settlement date. Previously, you could get away with just indicating the sold shares on your tax return.

Alert: If you have company stock in your account from various types of equity compensation, such as shares from ISO exercises, ESPP purchases, and RSU vesting, when you sell the shares be sure that you identify the ones you want to use. Selling other shares unintentionally may trigger unwanted tax consequences (e.g. a disqualifying disposition of ISO or ESPP stock). This situation may require a change in the standing order.

For seven more ideas on year-end tax and financial planning, see the full FAQ at

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Next year I may be in a higher tax bracket. I am thinking about exercising my nonqualified stock options before then to accelerate income into this year. What issues do I need to think about?

It is smart to consider the income thresholds that trigger higher tax rates. You are thinking the additional income from the exercise spread will be taxed a lower marginal tax rate this year and will not trigger the 3.8% Medicare surtax on your net investment income.

Example: You and your spouse expect to have modified adjusted gross income (MAGI) of $175,000 in 2014, and you project you will have $250,000 in 2015. This includes about $40,000 per year in dividends and capital gains, which are not subject to the 3.8% Medicare surtax in 2014 because your MAGI is below the $250,000 threshold. However, if you exercise NQSOs in 2015 and recognize ordinary income of $50,000, this additional amount will push your MAGI above the $250,000 threshold. You will then have to pay the 3.8% tax on the $40,000 in investment income, along with potentially higher ordinary income rates. The extra $50,000 of income will not trigger these taxes if you exercise in 2014, as your MAGI for the year will still be under $250,000.

However, before you rush into exercising, you may want to do some calculations with potential future stock prices and tax rates. When you exercise earlier than necessary and pay taxes on your option spread, you lose some of the leverage that stock options offer. A sense of unease about your future tax rates should not be the only reason for exercising options before the end of the current year. The tools on, including the Quick-Take Option calculator, can help you consider various "what if" scenarios.

Here are some general situations where it makes sense to evaluate whether you should exercise options this year rather than later:

  • You were already planning to exercise options in next few years.
  • The options are close to expiration.
  • Exercising this year would not push your income into a higher tax bracket and trigger the Medicare surtax or other extra taxes introduced by the American Taxpayer Relief Act.
  • The options are deep in the money (i.e. there is a big spread between the market price and the exercise price).
  • You need to diversify because your holdings are overly concentrated in company stock.
  • You plan to change jobs soon. (Vested options almost always expire if they are not exercised soon after you leave the company.)

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Special Articles On Year-End Planning

Top Ideas For Year-End Tax Planning With Stock Compensation (Parts 1 and 2)
Consider year-end or year-beginning tax planning with your stock compensation and company stock holdings. While investment objectives, not tax considerations, should generally drive your decisions, here are several ideas to review to prevent paying more taxes than necessary. Part 1 is available free to all registered users.

Stockbrokers' Secrets: Year-End Planning For NQSOs, Restricted Stock, And RSUs, by W.E.B. Bantling and Michael Beriss
The time for tax planning is before the year ends; tax season is too late. Learn about several ideas for year-end 2013 that apply to nonqualified stock options (NQSOs) and restricted stock/RSUs.

In Their Own Words: Financial Advisors On Strategies For Stock Compensation And Company Stock Holdings At Year-End 2014
Year-end planning can be tricky. We asked several financial advisors for their ideas on financial and tax planning for the end of 2014 and the start of 2015. This article presents their responses in their own words. Available free to all registered users.

Year-End Strategies For Employee Stock Purchase Plans: Ideas To Consider, by Matt Simon
When you think about year-end financial and tax planning, don't forget to review shares acquired through an employee stock purchase plan. This article outlines issues and strategies to contemplate.

Year-End Strategies For Restricted Stock: Ideas To Consider, by Bruce Brumberg
As part of your year-end and year-beginning tax planning, don't forget to review any grants of restricted stock, RSUs, or performance shares that vested this year, plus other company stock holdings. This article presents strategies many experts suggest.

Stockbrokers' Secrets: Year-End Planning For ISOs, by W.E.B. Bantling and Michael Beriss
Learn about year-end planning specifically for incentive stock options, including ideas related to the alternative minimum tax.

The ISO Tax Trap And The AMT Credit Myth: What To Do Before Exercise And At Year-End, by Alan Ungar
The tax reductions of the past few years have brought both good and bad news for holders of incentive stock options (ISOs). While you may have lower capital gains rates when you hold the shares long enough after exercise, it's harder to avoid the risks of the alternative minimum tax (AMT) and to fully recoup any AMT credit.

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Changes To IRS Form 1099-B Will Add To Cost-Basis Confusion On Upcoming Tax Returns

After you sell company stock, your brokerage firm will issue information about the sale either on IRS Form 1099-B or on its own equivalent substitute statement. You need the information on the form to complete your tax return for the year of sale. Special issues with Form 1099-B arise in the way it reports the cost basis of sold shares that were acquired from stock compensation. For the 2014 tax year, the IRS recently changed Form 1099-B, adding to the potential confusion about cost-basis reporting during the upcoming tax-return season.

According to the final cost-basis regulations issued by the IRS, brokers are prohibited from including income from equity compensation in the basis reported on Form 1099-B, starting with grants made on or after January 1, 2014. Your broker will report only what you paid for the stock at exercise or purchase. For grants made before that date, your brokerage firm can voluntarily report the adjusted full basis information with the compensation element. In any supplemental information that it gives, your broker may include the portion of the full basis not reported to the IRS.

For 2014 sales of company stock acquired from equity compensation, brokers can either (1) report the complete cost basis for pre-2014 grants, while reporting only the partial basis for later grants, or (2) report the unadjusted partial basis for all grants. It's important both to know how your broker is reporting this to the IRS and to make the appropriate adjustments when needed on Form 8949, which is used, along with Schedule D, for reporting stock sales.

The cost basis for restricted stock and RSUs raises additional issues because the reporting on Form 1099-B does not include the basis for these grants, as they are considered noncovered securities. To learn about the changes in Form 1099-B and cost-basis reporting, along with how to avoid costly mistakes on your tax return, see our newly updated FAQ on this complex topic.

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Nonqualified Deferred Compensation:, A Complete Online Resource For Participants And Professionals

Tax-rate increases and the new Medicare surtax have boosted the popularity of nonqualified deferred compensation. From the award-winning publishers of, features articles, FAQs, a glossary, podcasts, interactive quizzes, and a calculator, all to help you, your clients, or your executives understand and make the most of nonqualified deferred compensation.

  • Clear explanations of NQDC by experts
  • Financial planning, taxation, risks, job loss, and legal issues, along with core concepts
  • Appeals to plan participants, plan providers and administrators, financial advisors, attorneys, and companies with NQDC plans

For companies, education and communication are vital for ensuring NQDC plans work properly to motivate and retain vital executives, directors, and key employees. Companies can license our educational content and tools for websites, print materials, newsletters, and presentations.

For more information on, including its prestigious advisory board, see the About Us section of the website, and please contact us by phone (617-734-1979) or email (

Year-End Deferral Decisions With Nonqualified Deferred Compensation

Many executives and highly compensated employees both receive stock grants and participate in the company's nonqualified deferred compensation (NQDC) plan, where they can defer cash salary and bonuses to defer taxes (this is separate from an RSU plan with a feature permitting the deferral of share delivery).

Under the tax rules, the election to defer salary must be made in the year before the income will be received. Consequently, many NQDC participants are now making decisions about salary deferrals for 2015. In fact, the fourth quarter of the year is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. As with the year-end decisions for stock grants discussed above, one of the big issues to consider when planning next year's NQDC deferrals at enrollment are the ongoing impact of the 2013 tax-rate increases.

For the key issues to consider in year-end deferral decisions with nonqualified plans, see an FAQ at, a separate sibling website of To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at Another FAQ at explains the many benefits that deferral through NQDC plans can offer.

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Need CE Credits Before Year-End? Learning Centers At And Offer Credits For CEPs, CFPs, And Other Professionals

As the clock ticks toward the close of 2014, many professionals with continuing education requirements to meet before year-end will be relieved to learn that and its sibling website have courses and exams offering continuing-education credits. At, the Learning Center offers up to 20 credits for for Certified Equity Professionals (CEPs) and up to 15 credits for Certified Financial Planners (CFPs). Each course of study features podcasts, articles, and FAQs from They are woven into a dynamic, interactive learning tool that teaches the topics in a memorable way. The answer key for each exam also links to relevant content on the site for further reading and learning.

Built on a similar model, the the Learning Center on nonqualified deferred compensation offers up to 6 continuing education credits for Certified Financial Planners, 6 Professional Achievement in Continuing Education (PACE) credit hours for CLU® and ChFC® certifications, and up to 12 CPE hours for credentialed ASPPA members.

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