Year-End Planning 2022: myStockOptions Newsletter No. 90

Year-end 2022 checklist for stock comp and company shares
Year-end strategies for restricted stock/RSU shares when the stock price has fallen since vesting
Special resources on year-end financial and tax planning
myStockOptions year-end webinar available on demand
New 2023 IRS limits for qualified retirement plans affect deferral planning
Year-end CE credits for CEP, CFP, CPWA/CIMA

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SPONSORS OF THIS ISSUE

• StockOpter: Professional Equity Compensation Planning Software (see the ad below)

• myStockOptions Webinars: From stock comp basics to advanced financial and tax planning, our webinars have something for everyone (see the ad below)

• AdvisorFind Directory from myStockOptions.com: Search this resource for financial, tax, and legal advisors with experience in stock compensation (see the ad below)

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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. In 2022, year-end financial and tax planning can be tricky because of ongoing volatile stock prices and economic uncertainty. To help, myStockOptions.com provides education and guidance in the section Financial Planning: Year-End Planning, whose resources are highlighted in this newsletter.

WEBINAR: Learn key financial and tax strategies for stock comp at year-end 2022 and year-start 2023 in our on-demand webinar Year-End 2022 Financial & Tax Planning For Equity Comp.

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)

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The checklist below summarizes what you need for comprehensive year-end and year-start planning with stock compensation and company stock holdings.

Review:

• exercises, vestings, and ESPP purchases in current year
• holdings of NQSOs, ISOs, restricted stock/RSUs, and company shares
• whether any ISO exercises triggered the AMT and how to eliminate or minimize it
• if you pay estimated taxes, whether adjustments are needed for your 4th quarter payment or a change in your salary withholding
• 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, as your W-4 rate is sometimes applied to stock compensation withholding too

Know:

• 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 the 2018 tax reforms, whether the flat rate for federal supplemental withholding that applies to stock compensation will cover it, and what to do if it does not
• whether sales of company stock will trigger short-term or long-term capital gains or losses and the rules of tax-loss harvesting and wash sales.
• income-phaseout trigger points for any tax credits you're using, such as the American Opportunity Tax Credit for college funding
• at newly public companies or those announcing an upcoming IPO: when the lockup or other stock resale restrictions will end; any ability to sell some shares sooner; when shares will be delivered with double-trigger RSUs

Consider:

• 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
• Any changes needed in beneficiary designations, when allowed, for your stock compensation and/or your brokerage account holding company shares.
• Whether to pay estimated taxes in the year ahead because of substantial income expected from restricted stock/RSU vesting, NQSO exercises, ISO exercises, or an ESPP purchase/sale.

Collect:

• 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.

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The vesting and the sale are separate transactions and generate different types of income. You were first taxed on the stock's value at vesting, which is your tax basis in the shares. This created ordinary income to you in the amount of the vesting-date value.

From the vesting date onward you own the stock, and the capital gains tax rules apply, as with any other stock in your portfolio. The only exceptions to being taxed at vesting occur if you made a Section 83(b) election to be taxed at grant (not available for restricted stock units) or if the RSUs allow an election to defer share delivery and you made that election.

The treatment of capital losses at sale is then like that of any other stock you have bought. After vesting (or grant with an 83(b) election), whether the capital losses are long-term or short-term depends on how long you hold the stock (i.e. more or less than one year).

The only "credit" you get occurs because your basis in the stock is not $0 when you calculate your capital gains tax, even though you acquired the stock at no cost. Instead, the basis is the amount of compensation income at vesting reported on your W-2, and it is taxed at ordinary income rates. The loss follows the netting rules explained in another FAQ.

Example: At vesting in July the stock price was $25, so your 10,000 shares of restricted stock were worth $250,000. This is your tax basis, and it is included in compensation income.

• In mid-December you sell it when the stock price is $20, resulting in a short-term capital loss of $50,000 ($5 per share x 10,000 shares).
• You net this against any capital gains from other securities on Form 8949 Schedule D of your Form 1040 tax return.
• If there are no gains, you can use your losses against up to $3,000 of ordinary income, and you can carry forward any unused remainder.

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Below we list some of our content on year-end financial and tax planning, all of which has been fully updated for year-end 2022 and year-start 2023. To see our entire array of resources on year-end planning, including both articles and FAQs, see the year-end section at myStockOptions.com. For guidance on year-end planning with nonqualified deferred compensation, especially deferral elections for 2023, 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.

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
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.

NEW! Year-End Planning: 5 Key Items For Your Stock Comp Checklist, by the myStockOptions Editorial Team
This article presents perennial year-end ideas to consider from three leading financial and tax advisors with expertise in stock compensation.

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.

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.

NEW! Selling Stock At Year-End To Harvest Losses? Don't Get Tangled In The Wash-Sale Rule
Harvesting capital losses to offset capital gains on your tax return is a popular year-end strategy. But watch out for wash sales, which can tangle up your tax planning. This article explains what you need to know to avoid this tax trap.

PRESENTATION! Year-End Tax And Financial Planning: What Employees And Their Advisors Should Know
Updated annually, this slide-deck presentation provides a timely overview of year-end financial and tax topics for stock compensation, including points of importance for employee education and for financial advisors.

PODCAST! How The 2018 Tax Reforms Affect Year-End Planning For Equity Comp And Company Shares
Employees with stock compensation must still consider the changes 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.

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.

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

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The hugely popular myStockOptions year-end webinar that we held live on Dec. 1 is now available on demand: Year-End 2022 Financial & Tax Planning For Equity Comp. In 100 minutes, the webinar features insights from a panel of three leading financial advisors, including real-world case studies, to provide practical expertise for equity comp in both public and private companies. Panelists:

• John P. Barringer (CFP®), Executive Wealth Planning
• Rebecca Conner (CPA, CFP®), Founder, SeedSafe Financial LLC
• John Owens (CFP®, EA, ECA, CPWA®), Director of Financial Planning, Brooklyn FI
• moderator: Bruce Brumberg, JD, editor-in-chief of myStockOptions

Boost your knowledge of year-end and year-start strategies for stock options, restricted stock/RSUs, ESPPs, and company stock holdings to help you make smarter decisions and prevent costly mistakes. Volatile markets and economic uncertainty make the need for effective guidance even more important, as this webinar covers.

Webinar purchase, panelist details, and the agenda of topics are available at the myStockOptions Webinar Channel, where past myStockOptions webinars are also available on demand. You can also register for and watch the webinar immediately right here:

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For many participants in nonqualified deferred compensation (NQDC) plans, November and December are the time to be like an autumn squirrel and decide how much of next year’s salary to defer and store for the future. This decision about nonqualified plans is heavily influenced by the IRS contribution limits for qualified retirement plans. The IRS just set the qualified plan limits for 2023.

Those yearly contribution limits for qualified retirement plans are a big reason why companies offer nonqualified plans: to let executives and other highly compensated employees put away extra amounts for retirement with an elective nonqualified plan or an excess 401(k) plan. NQDC allows you to put away amounts of money beyond the permissible contribution amounts of standard qualified retirement plans.

The deferred income is “nonqualified” because it does not fit the rules in the tax code that allow tax-qualified plans, such as 401(k) plans. For retirement planning, NQDC can therefore bridge the considerable gap that arises between the amount of income that you will actually need in retirement and the amount of income that can be provided via your 401(k) plans and Social Security.

The complex rules under Section 409A of the US tax code must be followed in the deferral and distribution elections. The amount that you defer can only be informally funded by your company and is at risk should the company enter bankruptcy proceedings. Our sibling website myNQDC.com is a comprehensive resource on NQDC plans, including the basics, the deferral/distribution process, the risks, and the related financial and tax planning.

How 2023 IRS Qualified Plan Limits Affect NQDC Deferrals

Generally, you defer income via nonqualified plans only when you know you will max out your yearly contributions to qualified plans, such as your 401(k). Therefore, the contribution limits set by the IRS on qualified plans, adjusted annually for inflation, are important for NQDC planning:

Contribution type/limit	2022	2023
Compensation allowed in qualified deferral and match calculation	$305,000	$330,000
Elective comp deferrals	$20,500	$22,500
Catchup contributions for people 50+	$6,500	$7,500
Total defined contribution limits (employee and employer contributions)	$61,000 + catchup contribution	$66,000 + catchup contribution
Defined benefit plan payout limits	$245,000	$265,000
Income threshold defining key employees for top-heavy plans and six-month delay on payout upon separation	$200,000	$215,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$135,000	$150,000

Given the current inflation, the IRS changes in limits from 2022 to 2023 are much larger than they have been in recent years. However, if you’ve already maxed out your qualified plan contributions for 2022, you will still probably do the same in 2023, so you will need NQDC plans to defer any salary and bonus increases you expect in 2023. Also, if you believe tax increases are on the way and will affect you, you may feel a growing need to defer income.

Set by the Social Security Administration, the Social Security wage cap will rise in 2023 to $160,200, up from $147,000 in 2022. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $9,114 in 2022 and will rise to $9,932.40 in 2023. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com. See also the website’s FAQ on the top NQDC-related issues in year-end planning.

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The myStockOptions.com Learning Center has courses and exams that offer:

• 40 CE credits for Certified Equity Professionals and Equity Compensation Associates (over 100% of the total requirement)

• 26 CE credits for Certified Financial Planners (87% of the total requirement)

• 26 CE credits for CPWAs and CIMAs (65% of the total requirement)

• Potential self-reportable CPE for Certified Public Accountants (CPAs) and CE for CFA Charterholders (see the Learning Center for information)

Each course features podcasts, articles, videos, 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.

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