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myStockOptions Alert: Post-Tax-Season Planning 2016 (May 4, 2016)

This alert presents some timely planning ideas for equity compensation after tax season, along with some noteworthy updates in the award-winning content of myStockOptions. Click here to see a full list of recent additions and updates.


Post-Tax-Season Financial Planning For 2016 And Beyond

The time right after the completion of your tax returns is ideal for big-picture financial planning. For some initial steps, consider the ideas presented in our two-part article series on this topic: Restricted Stock And Stock Options: Financial Planning After Your Tax Return Is Filed. These include projecting your income and taxes for this year and next, understanding your cash needs for any special financial goals you have set for the near future and the long term, and the potential for changes in tax law under a new president. Be aware of your potential for triggering the alternative minimum tax, especially if you have incentive stock options (see the next item).


Will Your ISO Exercise In 2016 Trigger The AMT?

If your income is high or you have incentive stock options (ISOs), you must understand the alternative minimum tax (AMT). Your ISO exercise spread will increase your income for AMT purposes in the year of exercise if you hold the acquired shares through that calendar year. However, the AMT system is complicated, and your exposure to it can be hard to predict. A myStockOptions FAQ has a useful table of figures, updated for 2016, that estimate the tipping points for positive income adjustments that can trigger the AMT.


College Funding With Equity Comp: Income-Reporting Rules Will Soon Change

Eligibility for college financial aid is determined on the Free Application For Federal Student Aid (FAFSA). The FAFSA requires information on your assets (e.g. equity awards) as of the day you complete the form. Currently, when completing the form in any given year you report your income from the prior year. However, that rule will change in October 2016. From that time onward, instead of using income from the year before college enrollment, the FAFSA will use income from the year preceding the year before enrollment (i.e. the "prior prior" year). In other words, students' financial aid eligibility will be based on income from two years before they start college, not one year before. According to our college-funding contributor Troy Onink, the transition to the "prior prior" format will make parents' 2015 income more important than ever and will lead to a lot of confusion about how the rule works, how it will impact aid eligibility, when to file what, and to whom. For details, read his article series about tuition planning with equity comp: Funding Your Child's College Education With Stock Options And Other Stock Grants. It is part of the extensive content in our Life Events section.


0% Tax Rate For Sales Of Stock In Private Companies

The Protecting Americans from Tax Hikes (PATH) Act of 2015 made permanent the special tax treatment for qualified small business (QSB) stock. Therefore, when the required conditions are met, sales of QSB stock acquired after September 27, 2010, could qualify for a tax rate of 0% on the resulting capital gains. For details, see our two-part article series on this topic: Techniques To Defer Or Reduce Taxes On The Sale Of Your Company's Shares.


International Employees With Equity Compensation: Important Updates In Our Global Tax Guide

The Global Tax Guide at myStockOptions explains the taxation of equity compensation in 38 countries, including the rules on income tax, social taxes, capital gains tax, income-sourcing, tax residence, exit tax, and asset reporting. In several countries, the past few months have witnessed significant tax developments that have a beneficial effect on employees with equity compensation. For details on the updates below, click on the link to the country guide.

  • Canada: The new Liberal government has abandoned its controversial election promise to change the taxation of tax-preferred stock options. As a result, optionholders continue to receive the standard deduction for tax-qualified option income (50% for most Canadians).
  • United Kingdom: On April 6, 2016, the tax rate on capital gain from sales of shares was significantly lowered. Capital gain is now taxed at 20% (previously 28%) if the sum of your taxable gain plus all other annual taxable income is over £43,000. Capital gain is now taxed at 10% (previously 18%) if the sum of your taxable gain plus all other annual taxable income is at or below £43,000.
  • Denmark: The Danish Finance Act 2016 includes a proposed new tax treatment for equity awards. If it is approved, it will take effect on July 1, 2016. Taxation would be shifted from the time of share acquisition (e.g. option exercise or RSU vesting) to the time when shares are sold. Also, the income would be taxed as capital gain rather than employment income, meaning a lower tax rate for many employees.
  • Argentina: Starting in 2016, tax residents of Argentina pay a flat tax of 35% on capital gains from sales of shares issued by companies listed on stock exchanges outside Argentina. This is a major increase from the prior rate of 15%.

Major updates appear in several other country guides, including Belgium, Brazil, Finland, Norway, and South Africa.


Equity Compensation In Limited Liability Companies (LLCs)

Although they are not stock-based companies, LLCs can use equity incentives in the form of membership or profits interests. A new two-part article series by attorney Daniel N. Janich, LLCs And Equity Incentive Plans, presents the workings of these grants, including their structure and taxation.