Year-end strategies for restricted stock and stock options
Resetting the basis in company stock to minimize taxes
Special articles on year-end financial and tax planning
IRS finalizes regs on Medicare surtax and Additional Medicare Tax
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—never more so than now, amid 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, as noted in a recent PLANSPONSOR article about our year-end insights. 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 2013

What are some year-end strategies for restricted stock 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
Top ordinary income rate (39.6%) Taxable income of $400,000 (single) or $450,000 (joint)
Top rate on capital gains and qualified dividends (20%) Taxable income of $400,000 (single) or $450,000 (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 $250,000 (single) or $300,000 (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 on for additional ideas on exercising stock options and on selling company stock at the end of 2013.

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, 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.

2. You're over or near the yearly maximum for Social Security. If your income at year-end already exceeds the Social Security wage base for the year ($113,700 in 2013 and $117,000 in 2014), by exercising nonqualified stock options or stock appreciation rights in December you can avoid Social Security tax and keep that 6.2% of the income. If you wait until January, your yearly wage base starts at $0, and the Social Security tax will again apply on the exercise spread and the vesting value of restricted stock up to the new maximum for that year.

3. Additional Medicare tax. In 2013, the Medicare tax rate rose to 2.35% for single filers with yearly compensation income of more than $200,000 (more than $250,000 for married joint filers). Also starting in 2013, a new 3.8% Medicare surtax now applies to investment income, such as dividends and stock sale gains, for people in that 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 set for 2013 will remain for future years 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 2013 rather than in 2014. 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 new Medicare tax on investment income. This may lead you to lower taxes by selling the shares in 2013.

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

Next year, my income will trigger the 3.8% Medicare surtax on investment income, along with higher tax rates on capital gains and dividends. If I were to sell the stock this year, I would avoid these taxes, and I would then repurchase the stock to reset the basis. What are the issues I need to consider?

It is smart to consider the income thresholds that trigger higher tax rates. By selling stock at a gain and then buying it back at the current price, you create a new basis in the stock. Because the shares are sold for a gain, there is no wash sale to worry about. The main reason for selling would be to avoid higher capital gains tax rates in a future year and the new Medicare surtax on net investment income.

Alert: If your exposure to the higher 20% capital gains tax rate and/or the Medicare surtax varies because your income is not consistent from one year to the next, you may want to consider selling stock with long-term gains only in years when your income will not trigger those higher tax rates.

Compare this technique of capital gains harvesting to tax-loss harvesting, in which stock is sold at a loss (without repurchase) to have future losses that can be netted against gains (another year-end planning strategy).

Example: You own company stock worth $100,000. The tax basis is $60,000. If you sell it now, you have $6,000 taxes on a $40,000 gain (at your current 15% capital gains tax rate). This compares to $9,520 in taxes at a combined rate of 23.8% and $7,520 at a combined rate of 18.8%. If you buy the stock back at the same time, you obtain a $100,000 basis for a future sale.

Before you decide to do the same type of transaction, consider these issues in the situation presented by the example above:

  • Check the size of capital-loss carry-forwards or losses from this year. Depending on your prior tax-loss harvesting, you may have $40,000 in losses to net against gains. If so, you can wait on a sale until the future, as you would not be paying any tax on gains up to that amount.
  • Decide how you will pay the taxes and think about alternative uses of that money.
  • Individuals who may be close to death should consider that the step-up in basis which occurs at death eliminates entirely the tax on the gain (i.e. you would want to wait on the sale).
  • Think about whether a sale would trigger an unwanted disqualifying disposition for shares acquired through an employee stock purchase plan or incentive stock options.
  • Remember that insider-trading rules and company blackouts may prevent sales and purchases. Unless you already have a Rule 10b5-1 plan in place, best practices for these plans usually require more than a few weeks to elapse between the time of plan setup and the first sale under the plan.

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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 (Part 3): 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
Year-end planning can be tricky, and it has never been more so than now, amid the tax-rate changes that took effect in 2013. We asked five financial advisors for their ideas on financial and tax planning for either the end of 2013 or the start of 2014. 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 (Part 7): 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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IRS Issues Final Regs On Medicare Surtax For Investment Income And On Additional Medicare Tax

As detailed in the first FAQ above, depending on your income level you may now have to pay a 3.8% surtax on top of the usual capital gains tax when you sell company stock, and you may have to pay an extra 0.9% on top of the regular Medicare tax on compensation income. Stock compensation can cause you to pay these additional taxes by pushing your yearly income above the thresholds that trigger them.

In late November, the IRS issued:

Two New Tax Forms

If you must pay these taxes, or if you require a credit for any adjustment in the additional Medicare tax, you will have new forms (still in draft status as of Dec. 9) to file with your tax return:

  • Form 8960 to pay the Medicare surtax
  • Form 8959 to determine whether you owe the Additional Medicare Tax and/or whether your company withheld the right amount of Additional Medicare Tax from your wages or compensation. The IRS wants to ensure enough Additional Medicare Tax is paid. Depending on your income and filing status, you may be eligible for a refund or a credit. While your Form W-2 does not have a special place for reporting the Additiona Medicare Tax that was withheld, you will need your W-2 to complete the calculations on the new form.

For details on these new and increased Medicare taxes, including strategies for minimizing them, see the related FAQ on

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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 2014. 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, the big new developments to consider when planning next year's NQDC deferrals at enrollment are the 2013 tax increases. (Those tax hikes were still uncertain at the end of 2012, when deferral decisions were made for 2013.)

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 end of 2013, 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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