Year-End Planning Ideas & Strategies: myStockOptions.com Newsletter No. 78 (Dec. 2019)
IN THIS ISSUE
2019 year-end checklist of items to consider about stock comp
Exercise/vesting on last business day of the year: taxable in 2019 or 2020?
Articles and other resources on year-end planning
Looking ahead: what's new for tax season 2020?
Year-end CE credits for CEPs, CFPs, CPWAs, CIMAs, and others
Save the date: myStockOptions financial-planning conference, June 15–16, 2020
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Year-end is a key time for financial and tax planning, especially for the millions of employees who have stock compensation or holdings of company shares. Tax changes introduced in 2018 by the Tax Cuts & Jobs Act (tax reform) continue to affect their year-end-planning decisions. Meanwhile, the election year ahead in 2020 presents uncertainty about the future of tax laws that affect financial- and tax-planning strategies. To help, myStockOptions.com provides education and guidance in our section Financial Planning: Year-End Planning.
This newsletter highlights some of our year-end content. All of the content on myStockOptions.com is available through licensing.
Don't want to wait for our quarterly newsletter updates? The myStockOptions.com Blog is a great way to stay informed about new developments in equity compensation. You can also follow us on Twitter and Facebook. In addition, I now have a blog at Forbes.com.
—Bruce Brumberg (Editor-in-Chief)
|What should be on my 2019 year-end checklist of items to review, know, and consider about my stock compensation?|
The checklist below presents what you need for comprehensive year-end planning with stock compensation.
- exercises, vestings, and ESPP purchases in current year
- holdings of NQSOs, ISOs, restricted stock/RSUs, and company shares
- scheduled vestings in the year ahead, including the end of the cycle for a performance share grant and when payout occurs
- salary contributions allocated for ESPP purchases
- any estimated adjustments needed for the year ahead in the Form W-4 used for salary withholding (the IRS revised Form W-4 for 2020), as your W-4 rate is sometimes applied to stock compensation withholding too
- deadlines for option or SAR exercises and the expiration dates of option grants
- expected new grants in year ahead and ESPP enrollment/change dates
- trading windows and blackouts, company ownership guidelines, and any post-vest holding-period requirements
- your ability to spread the recognition of income from certain sources over this year and next year
- your marginal tax rate after tax reform, and whether the flat rate for federal supplemental withholding that applies to stock compensation will cover it
- whether sales of stock trigger short-term or long-term capital gains
- your situation, including short-term cash needs that may prompt you to sell company stock and/or exercise options
- whether your decisions should be entirely tax-driven
- your outlook for both your company's stock price and your job
- how comfortable you are with your concentration in company stock and whether you should diversify
- multi-year projections for your income and taxes
- donations in company shares instead of in cash
- Company and brokerage firm statements, whether online or in print. You will need them for tax-return reporting.
For year-end financial-planning points to consider with stock compensation, see a related FAQ.
Stock compensation raises many questions.
While myStockOptions.com is a good place to learn about concepts, issues, and general strategies in equity compensation, at some point you may need an advisor to help with your unique situation. Yet finding a good advisor can be hard when you are busy and don't know where to start. The AdvisorFind Directory from myStockOptions.com is for you.
Searching AdvisorFind is free and does not require registration at myStockOptions.com.
|For NQSOs or SARs exercised on the last business day of 2019, or for restricted stock that vests on that day, is the income taxable in 2019 or 2020?|
The income will be included in tax year 2019, even if you recognize it on the last business day of the year—it does not matter that your company will not send the taxes to the IRS until January 2020.
Stock option income recognized on an exercise date in 2019, and restricted stock/RSU income with a vesting date in 2019, will be included in 2019 taxable income and on your W-2 for 2019. That compensation income will count towards your annual Social Security income limit for 2019, which was $132,900 ($137,700 in 2020). In addition, stock sales on the last business day of the year, which is also the last trading day of the year, are considered transactions in that year.
Alert: You will want to ask how your company handles stock plan vestings scheduled for December 31 or January 1. Will the vesting revert to the previous business day or the next business day?
How Is The Exercise Date Defined?
You should confirm how your stock plan defines the exercise date. For most companies, the date when the notice of a cashless exercise is received in a same-day sale is considered the date of payment, so the income would be for 2019. However, if the company uses the date it receives payment from the broker for the sale, i.e. the settlement date, and receives this payment in 2020, the exercise would be counted as income in 2020.
If you're doing an exercise-and-hold of options or SARs with cash it must be sent in to your company or plan administrator by December 31. Check your plan documents and rules for procedures and deadline, as the exercise must be completed by year end.
After making a cashless or sell-to-cover exercise, you will receive IRS Form 1099-B from your broker by February of the following year. You report this stock sale (and the W-2 income) on the tax return for 2019 that you file in 2020. For details, see the section Reporting Company Stock Sales, where the FAQs have annotated diagrams of the necessary IRS tax-return forms.
|Resources on year-end financial and tax planning for stock compensation and company shares|
Below we list our articles about year-end financial and tax planning, all of which have been fully updated for year-end 2019. To see our entire array of content on year-end planning, see the year-end section at myStockOptions.com. For guidance on year-end planning with nonqualified deferred compensation, especially deferral elections for 2020, see the related FAQ at our sibling website myNQDC.com.
Our award-winning content is available with Premium or Pro Membership or through corporate licensing.
12 Ideas For Year-End 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.
7 Year-End Strategies For Restricted Stock, RSUs, And Performance Shares, 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.
Year-End Strategies For Employee Stock Purchase Plans: Ideas To Consider, by the myStockOptions Editorial Team
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.
PODCAST! How Tax Reform Affects Year-End Planning For Equity Comp And Company Shares
This is the first year-end season when taxpayers with stock compensation must consider the changes introduced in 2018 by the Tax Cuts & Jobs Act. This podcast summarizes how those changes affect your year-end planning, along with strategies that apply every year-end. Available free.
Stockbrokers' Secrets: Year-End Planning For NQSOs, Restricted Stock, And RSUs, by John Barringer 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 2019 that apply to nonqualified stock options (NQSOs) and restricted stock/RSUs.
Stockbrokers' Secrets: Year-End Planning For ISOs, by John Barringer and Michael Beriss
Learn about year-end planning specifically for incentive stock options, including ideas related to the alternative minimum tax.
Leading Advisors Reveal Strategies For Equity Comp And Company Stock At Year-End
Year-end planning can be tricky amid the ongoing impact of tax-rate changes that took effect a few years ago and expected tax reforms in the year ahead. We asked several leading financial advisors for their ideas on financial and tax planning for the end of 2019 and the start of 2020. This article presents their responses in their own words. Available free.
Making Gifts Of Company Stock, by the myStockOptions Editorial Team
In addition to being an effective form of generosity, gifting shares can play a role in financial and tax planning for your equity compensation and company stock. This article presents the basics that you need to know when you are contemplating gifts of shares acquired from stock options, restricted stock/RSUs, or employee stock purchase plans.
Making Donations Of Company Stock, by the myStockOptions Editorial Team
Nonprofit organizations appreciate donations of shares as much as gifts of cash, and most large nonprofits are experienced in accepting stock donations. This article presents the basics that you need to know when you are contemplating charitable donations of shares acquired from stock options, restricted stock/RSUs, or employee stock purchase plans.
How To Defer Or Pay No Capital Gains Tax On Company Stock Sales: 6 Ways Under The Tax Code, by Bruce Brumberg
The US tax code provides a few perfectly legal ways, depending on your income, financial goals, and even life expectancy, to defer or pay no capital gains tax, maximizing the benefits of your grants and letting you put away more toward your financial goals. If you qualify, consider these moves as part of your year-end planning.
Six Ways Tax Reform Affects Your Stock Compensation And Financial Planning
Effective from the start of 2018, the Tax Cuts & Jobs Act includes provisions that either directly or indirectly affect stock compensation, whether in financial planning or in stock plan administration (though the core tax treatments have not changed). This article details six provisions that have an impact on the taxation of stock compensation or holdings of company shares and may affect your year-end planning. Available free.
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|Looking ahead: what's new for the 2020 tax-return season?|
Ready or not, tax-return reporting has changed yet again for the 2020 tax-return season. Meanwhile, the impact of the 2018 changes in tax rates and brackets continues. Employees with 2019 income from stock compensation or sales of company stock must be aware of the changes for 2019 tax returns, to be filed by April 15, 2020.
The IRS Form 1040 tax return, condensed in 2018, has been revised again for the 2019 tax year. The numbered schedules (supplementary forms) of Form 1040 have been reduced to three (Schedules 1, 2, 3).
- A new tax return, IRS Form 1040-SR ("US Tax Return For Seniors"), is available for taxpayers born before January 2, 1955. It has a large, easy-to-read font and includes a standard-deduction chart so that these taxpayers don't need to access the instructions, though Schedule A is still available for itemizing deductions.
- The discontinued tax returns of the past, Form 1040A and Form 1040 EZ, have not returned.
- On the 2019 IRS Form 1040, total capital gain or loss on Schedule D is once again entered directly on IRS Form 1040, not on Schedule 1 as it was last year. For details, see our commentary in the myStockOptions.com Blog.
- The AMT calculation total on Form 6251 is entered on a different line of Schedule 2.
- The tax legislation that took effect in 2018 (the Tax Cuts & Jobs Act) continues to affect the tax rates that apply to stock compensation.
|Need CE credits before year-end? Learning Centers at myStockOptions.com and myNQDC.com offer credits for CEPs, CFPs, and other professionals|
The myStockOptions.com Learning Center has courses of study and exams that offer:
30 continuing-education credits for Certified Equity Professionals (100% of the total requirement!)
15 continuing-education credits for Certified Financial Planners
15 continuing-education credits for CPWAs and CIMAs (37.5% of the total requirement)
CPE for Certified Public Accountants (CPAs) and CE for CFA Charterholders (see the Learning Center for information)
Each course of study features podcasts, articles, and FAQs from myStockOptions.com. 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.
Six Self-Study Courses
The six courses offered through the myStockOptions Learning Center focus on nonqualified stock options, incentive stock options, ESPPs, restricted stock/RSUs, SEC law for stock compensation, and financial planning with equity awards. Built on a similar model, the the myNQDC.com 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.
|Save the date! myStockOptions 2020 advisor conference|
The 2020 myStockOptions conference, Financial Planning for Public Company Executives and Key Employees, will be held on June 15 and 16 at the Hilton San Francisco Airport Bayfront. The conference is for financial advisors working with executives, directors, and highly compensated employees at public and private companies, as well as others interested in those topics. The event will start on the afternoon of June 15 with an advisor boot camp on equity comp. A full day of conference sessions with expert speakers will follow on June 16.
Our conference is recommended in The 20 Best Conferences For Financial Advisors To Choose From In 2020 by financial-planning thought leader Michael Kitces!
Please contact us (firstname.lastname@example.org) to be notified when registration starts at the early-bird discount rate.
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