Year-end tax tips to minimize taxes and avoid mistakes
Netting stock losses against income from grant, vesting, or exercise
Articles on year-end planning
Tax changes adopted in financial rescue bill: AMT & ISOs, tax-basis reporting, executive comp.
Highlights of new content: underwater stock options; donations of stock to private foundations and donor-advised funds; retirement acceleration with restricted stock; transferring ESPP rights
Licensing content and tools


The Executive Compensation Disclosure Treatise and Reporting Guide: Help for the upcoming proxy season (see and information below)

Find out why E*TRADE Corporate Services is the stock plan provider of choice for a quarter of the S&P 500 (see and information below)

Reform AMT: Support its efforts with a donation (see and information below)


Our educational content about year-end planning and tax returns form some of the most popular sections on Given the market downturn and the likelihood of tax-rate changes ahead, employees and financial advisors have an increased load of factors and issues to understand, and more pressure than ever to avoid costly mistakes. In this issue of our newsletter, we present excerpts of two FAQs on year-end planning, along with links to other valuable content.

In the current financial climate, our continually updated content and tools are more needed than ever. We want to thank our members at all levels who continue to praise and preach the benefits of membership and licensing to their colleagues, financial advisors, compensation/HR/finance professionals, and companies. This year, despite its economic twists and turns, has been successful for us. Our extensive base of both individual members and corporate clients has continued to grow, and we even received a patent.

After this crazy year, we hope you have an enjoyable and restful holiday season. While we don't know exactly what lies ahead, we humbly appreciate what we have achieved with your support.

~ Bruce Brumberg, Editor-in-Chief


Below are two frequently asked questions (FAQs) about year-end planning for company stock. They are taken from the 700+ FAQs on All of these FAQs are available for your company to license or by Premium or Pro Membership. Please do not copy or excerpt this information without our permission.

Question 1:

What are some strategies for stock options and restricted stock at year-end 2008?


This can depend on many factors, including the outlook for your company's (likely depressed) stock price and the prospects for changes in tax law during the year ahead. Unless you were already definitely planning to sell company stock or exercise options soon, most experts feel that the likelihood of higher tax rates ahead should not be the only reason for doing so at the end of 2008.

Below we present several common situations and the strategies that many experts suggest (the full FAQ covers 10 different suggestions, based on the type of stock grant).

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 what the taxes will be if the rate for that bracket goes up. (During his campaign, Barack Obama said he intends to increase the top marginal tax rates to 36% and 39.6% during his presidency, but amid the economic downturn this rise may not occur till the current rates expire at the end of 2010.) You might be able to spread the same-day exercise/sale over the end of this year and the beginning of next year. Alternatively, if the rate of the tax bracket you are already in is likely to increase next year, then you may not want to wait on exercising all the options.

Alert: When you do sell your company stock, reporting it on your tax return raises other issues and pitfalls. See the special section Reporting Company Stock Sales, with annotated examples of Schedule D, in the Tax Center at
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 ($102,000 for 2008 and $106,800 for 2009), by exercising nonqualified stock options (NQSOs) or stock appreciation rights (SARs) in December you can avoid the 6.2% Social Security tax (1.45% Medicare tax is uncapped). If you wait until January, your wage base for the year starts at $0, and the 6.2% 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. Even if you will soon be over the maximum for this year, you'll save a little because the maximum additional Social Security tax is expected to rise to $6,621.60 in 2009, up from $6,324 in 2008.

3. Your restricted stock vested this year. Unlike stock options, which trigger taxes when you choose to exercise them, restricted stock gives you no control over the timing of your taxes (unless you made a Section 83(b) election or have a special type of RSU with deferral features). You own the stock outright and have taxable W-2 income at vesting. Therefore, you can try to plan the timing and shifting of other income around this restricted stock income, as suggested in #1 above. See also the considerations in #5 below about whether to continue holding the stock after vesting.

4. You exercised incentive stock options (ISOs) this year, you still hold the stock, and the stock price dropped substantially. It is important to calculate whether you should sell the stock this year (i.e., a disqualifying disposition) to eliminate any alternative minimum tax (AMT) on the spread at exercise. Not doing this analysis near the end of the year, especially after the poor performance of the stock market in 2008, is a big mistake that many people with ISOs make. If you decide to sell the stock, to avoid problems with the wash sale rule do not repurchase company shares within 30 days after the sale. See other FAQs on to help minimize or manage the AMT liability that can arise from ISOs.

5. The stock price dropped after your NQSO exercise or restricted stock vesting this year. The tax treatment is fixed at the time you exercise options or SARs, and when restricted stock or RSUs vest. This is the tax rule for ordinary income, regardless of the future stock price and whether you hold or sell the stock. You may have planned to sell the stock at price targets after holding it long enough to receive long-term capital gains treatment, but the stock price fell significantly. In this case, you may want to consider selling the stock to receive a short-term capital loss, perhaps to net the loss against any capital gain, to diversify, or at least to cover any additional taxes that you will owe with your tax return for the spread at exercise or the value at vesting.

Alert: When you're selling company stock at a loss to net against gains, be careful about the wash sale rules if you intend to buy company stock again soon.
Alternatively, your stock price increased, hitting your targets earlier than you expected. Now you want to sell before the one-year mark because you are concerned that your stock has peaked or you feel overconcentrated in company stock, but you dislike paying short-term capital gains rates (i.e., the same rates as those for ordinary income). It's likely that you have capital-loss carry-forwards from last year or short-term losses from this year that you can net against these gains. This is a good time to use up these losses against your short-term gains. (See the related FAQ on netting capital losses against capital gains.)
Alert: Whenever you sell or buy company stock, be sure you are not violating either the laws against insider trading or any blackout rules imposed by your company.
6. You are deciding now whether to exercise and hold ISOs. You may want to see how much of a cushion you have in exercising ISOs before you trigger AMT. This type of analysis is discussed in another FAQ on this website. Do a multi-year analysis to determine whether you can avoid triggering AMT by exercising one portion of your ISOs this year and another portion next year. If your stock price is low because of the general downturn in the stock markets, this may be a good year for an exercise-and-hold strategy with ISOs. Assuming you hold the ISO stock for one year after exercise (and two years from grant), all the appreciation at sale is taxed at long-term capital gains rates.

For more year-end ideas, including those on the revised AMT refundable credit and on gifts and donations of company stock, sign in to read the full FAQ.

Help for the upcoming proxy season: Executive Compensation Disclosure Treatise and Reporting Guide

Dave Lynn, Broc Romanek, and Mark Borges have just wrapped up The Executive Compensation Disclosure Treatise and Reporting Guide, which includes everything you need to know to comply with the SEC's new executive compensation rules. This comprehensive body of work—over 1,000 pages—is chock full of explanations, annotated sample disclosures, analyses of possible situations that you may find yourself in, etc. It will be essential, given that SEC staff, investors, and the media are scrutinizing proxy disclosures now more than ever before. Here are some FAQs about the Treatise; and get a preview of the depth of the Treatise by looking at this detailed table of contents.

Dave was the key staffer over the past decade to handle compensation disclosure issues at the SEC. The electronic version of the Treatise is available now; a hard copy of the Treatise will be mailed immediately when you order, so you will have plenty of time to refer to it during your next proxy season.

Bonus: When you order the Treatise, you will also receive the quarterly Proxy Disclosure Updates newsletter, in which Mark and Dave will bring you all the latest that you need to know. You will receive the first two of these issues before the proxy season starts, providing you critical guidance to help you navigate this year's pitfalls and expectations.

Here is what you will get:

  • Complete and practical explanations of each nuance of each provision of the executive compensation rules, including how Form 8-K and the corporate governance and related-party transaction rules impact compensation disclosures
  • Akin to the Romeo & Dye Section 16 Forms & Filings Handbook, hundreds of possible scenarios with full analyses of what you need to do. You will never feel like you are "starting from scratch."
  • Numerous sample disclosures with annotations to help you understand how they meet the expectations of SEC staff, investors, and the media.
  • Practice pointers that will help make you an expert.
  • Access to an online version of this large body of work, searchable and at your fingertips at all times.
  • And as a bonus: Mark Borges' quarterly Update newsletter, to bring you all the latest that you need to know.
Try a no-risk trial now: Order now so that Executive Press can rush you the newsletter as well as a copy of the 1,000-page Treatise; note there is a reduced rate if you are a 2009 member of If at any time you are not completely satisfied with the Treatise, simply return it and we will refund the entire cost.

Question 2:

Will my income from restricted stock vesting (or NQSO exercise) be netted against my short-term capital losses from this year (or those that were carried forward from last year?


The value at vesting (or at exercise for NQSOs) is all ordinary income. You have capital gain only for the increase in the stock price after vesting or exercise. Only this gain at sale can be available to net against capital losses. You still need to complete Schedule D on your tax return for any sale, as explained in other FAQs in the Tax Center.

These gains at sale on the appreciation after vesting for restricted stock and at exercise for NQSOs (or after grant with restricted stock if you made a Section 83(b) election) can be offset by your capital losses for this year and/or any capital-loss carry-forwards from last year. The difference between the top rates for ordinary income and the top rates for capital gains after the 2003 tax cut and later extensions did not change this amount. It makes capital losses more valuable when they are netted against short-term gains (taxed at ordinary income rates with a maximum of 35%) or against ordinary income instead of being applied against long-term capital gains (a maximum rate of 15%).

Fortunately, your capital losses, either carried forward from last year or created this year, will not be lost. You can net up to $3,000 of capital losses against ordinary income each year, and the unused balance moves forward indefinitely until it is used up.

Example: You sell company stock this year at a short-term capital loss of $8,000. Taking advantage of market volatility, you buy another stock and quickly sell it at a short-term capital gain of $5,000. Assuming no other sales or loss carry-forwards, these two transactions net each other out on your IRS Schedule D, leaving you $3,000 to offset against ordinary income.
Congress has seemed somewhat serious about increasing the $3,000 amount but did not do so in the recent tax changes. (During the presidential campaign, John McCain suggested raising it.) This amount may be either indexed or increased as part of tax cuts or reforms.

Find more strategies for using capital-loss carry-forwards with stock options, including incentive stock options (ISOs), in a related FAQ.

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Stockbrokers' Secrets (Part 3): What I Tell My Best Clients About Year-End Planning by W.E.B. Bantling and Michael Beriss
For year-end 2008, learn about several planning concerns that apply to stock options and restricted stock. Meanwhile, look ahead at the likelihood of tax-rate changes under President Obama. Read this article free!

In Their Own Words: Financial Advisors On Company Stock Strategy For Year-End 2008 And The Market Downturn
The market drop of 2008, combined with the likelihood of tax-rate changes ahead, affects year-end planning for your company stock and grants. We asked financial advisors around the United States for their ideas on planning for both year-end and beyond as the downturn plays out. Read their responses in their own words. Read this article free!

How Tax Rate Changes Can Impact Your Strategy For Stock Options And Restricted Stock (Part 1) This is premium content by Stanley Trotta, with Robert Gordon
Like many people, you may believe a tax hike is on the horizon. Should you take action with your stock options and company stock now or wait until the new rates apply? This article series analyzes the decision. Part 1 looks at nonqualified stock options and restricted stock.

Ten Ideas For Year-End Tax Planning With Stock Options And Company Stock This is premium content by Martin Nissenbaum
Learn year-end and year-beginning tips for your stock options and company stock. While investment objectives, not tax considerations, should generally drive your decisions, this article presents 10 ideas to avoid paying more taxes than necessary.

Content with the This is premium content symbol requires Premium Membership.

E*TRADE Corporate Services
offers full end-to-end support for all equity vehicles, including options, ESPPs, restricted stock, stock appreciation rights, and—coming later this year—performance awards. Whether you choose full or partial outsourcing, or in-house plan management, you will receive dedicated support, expert service, and product leadership. With 25 years of experience, E*TRADE Corporate Services knows how to meet the needs of your employees, your executives, and your auditors. Visit or email to learn more.


The weighty Emergency Economic Stabilization Act of 2008 (EESA), which provided the famous $700 billion rescue package (or "bailout") for troubled banks caught in the credit crisis, also included provisions on the alternative minimum tax (AMT) that apply to many people who have incentive stock options (ISOs), AMT credits, or unpaid ISO-related AMT bills.

If you did not see the alert we sent on this topic in October, see the following highlights with links to the relevant FAQs on

  • The new income exemption amounts used in the AMT calculation for tax year 2008 ($46,200 for single filers and $69,950 for married joint filers). What Barack Obama intends to do about the AMT remains unclear, partly because the unforeseen vast spending by the government to fight the economic downturn will make it hard to reduce tax revenues in the near future. During the campaign he supported permanently indexing the AMT income exemption amounts for inflation.
  • Revised provisions make it easier and quicker to use old long-term AMT credits to get a bigger tax refund through 2012. You can now use up to 50% of AMT credits more than three years old (i.e., in 2008, from 2004 or earlier), without any ceiling on income that previously might have phased out your eligibility to use the credits.
  • A new tax abatement wipes out any AMT liability from ISO exercises before 2008 that were owed but never paid, along with any unpaid interest and penalties associated with ISO-related AMT liability.
For more details on AMT, including techniques to limit and manage it, see the sections ISOs: AMT and ISOs: AMT Advanced on

The law and followup interim regulations also have provisions that, either directly or indirectly, affect equity compensation and its taxation. For now, these apply only to financial institutions that participate in various ways in the EESA bailout. However, it is predicted that the first three provisions below will be expanded to all public companies within the next few years:

1. Under amendments to Internal Revenue Code Section 162(m), the corporate tax deduction for compensation is limited to $500,000 per senior executive, and no performance-based exception applies to allow deductions over this amount (this otherwise would exempt stock options and performance-vested restricted stock).

2. Golden parachute payments to senior executives are prohibited while the government holds equity or debt in the financial institution. Clawback provisions apply to any bonus or incentive compensation that is based on financial statements or other criteria which later prove to be materially inaccurate.

3. Incentives that involve "unnecessary and excessive risks" are prohibited.

4. As part of revenue offsets in the bill, for sales of shares acquired on or after January 1, 2011, stockbrokers and transfer agents (including stock plan service providers) must report to you the acquisition dates, the tax basis, and whether capital gains are long- or short-term. Currently, when stock is sold, only the gross proceeds are reported on the IRS Form 1099-B that you use to complete Schedule D of your tax return.

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Support The Organization Whose Efforts Produced Refund Of AMT Credits & Abatement Of Liabilities On Incentive Stock Options

The refundable AMT credit, the refunding of interest and penalties related to incentive stock options (ISOs), and the abatement of tax liabilities caused by AMT from ISOs discussed in the newsletter article above and on are all made possible by the efforts of ReformAMT ( and its partners, including the Coalition for Tax Fairness.

ReformAMT is a grassroots organization founded in 2001 after the stock market crash, when people across the country faced AMT liabilities on phantom income for ISOs. Our mission has been to correct the injustice of how AMT treats incentive stock options in taxing people on money they never realized.

Over the past 7½ years, we have been active in:

  • Organizing Congressional campaigns across the country that included letter-writing, phone-calling campaigns, rallies, testimony to Congress, and travel to Washington DC
  • Working with prominent lobbying firms
  • Working with and educating Congressional offices while raising awareness of the issue and garnering support for legislation on ISOs and AMT
  • Working with the IRS to help families across the country in their collection cases
  • Introducing 10 bills, the last three of which were passed into law
In 2006, the effort passed the first piece of legislation that refunded AMT credits over five years, starting with tax year 2007. However, this law had limitations that restricted refunds based on the Taxpayer's AGI. In 2007, we passed a second piece of legislation that remedied some of the shortfalls of the bill passed in the previous year. Now in 2008, we have passed another piece of landmark legislation that enhances and removes the limitations of the previous law.

Unfortunately, passing legislation is hard and expensive. Our completely volunteer organization needs your donation to help pay for lobbying and expenses incurred over this long effort. Some of our leaders have taken out loans and donated to the cause. Others have gone without a job for 7½ years to work on this effort full-time for everyone's benefit.

Please help us pay our bills by donating a 4%–5% portion of your refund: visit

Thank you for your support!


Here are selections from's newest award-winning educational content. All of these are available to our Premium and Pro Members and our licensees:

How you can still qualify for a tax rebate under the Economic Stimulus Act of 2008 if your stock compensation and other income previously made you ineligible. See the FAQ in the Tax Center.

Approaches companies are taking to underwater stock options, including the latest data on trends for option exchanges. See the section Basics: Underwater Stock Options.

Structuring retirement acceleration provisions with restricted stock to avoid taxes. See the FAQ in Life Events: Retirement.

With employee stock purchase plans (ESPPs), can you transfer your purchase rights? See the FAQ in ESPPs: Rules.

Methods for donating company stock and options to charities, including the use of donor-advised funds and the creation of your own private foundation. See the article in Financial Planning: Gifts.

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Many individuals who use have full access to the website as a Premium or Pro Member. In addition, companies, stock plan providers, and financial advisors can purchase:

  • Premium Memberships in bulk at discounted subscription rates
  • Licenses for our Knowledge Center of content and tools, which can be easily integrated into HR and compensation portals and stock plan service providers' websites. Our resources are particularly useful for educating employees and executives who are new to restricted stock/RSUs, for the approach of key vesting dates, or for tax season.
  • Pro Memberships for financial and wealth advisors who want to track and model for multiple clients
For more information on these corporate services, please email inquiries to

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