Year-End Planning 2021: myStockOptions Newsletter No. 86

Year-end 2021 checklist for stock comp and company shares
Build Back Better Act: Should tax legislation in Congress influence 2021 year-end planning?
Special resources on year-end financial and tax planning
myStockOptions year-end webinar available on demand
New 2022 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. The tax changes introduced in 2018 continue to affect their year-end-planning decisions. Meanwhile, the future of tax legislation in Congress that may affect financial- and tax-planning strategies remains uncertain. To help, myStockOptions.com provides education and guidance in our section Financial Planning: Year-End Planning, highlighted in this newsletter.

WEBINAR: Learn key financial and tax strategies for stock comp at year-end 2021 and year-start 2022 in our on-demand webinar Year-End 2021 Financial 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 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
• 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
• income-phaseout trigger points for any tax credits you're using, such as the American Opportunity Tax Credit for college funding and the expanded Child Tax Credit
• 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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While it abandoned earlier tax increases that had been proposed, such as changes in ordinary income rates, capital gains rates, and estate and gift taxes, the Build Back Better Act that the House passed on November 19 does include provisions for:

• imposing a surtax of up to 8% on the very wealthy
• allowing SALT (property and state tax) deductions up to $80,000 (currently limited to $10,000)
• limiting the qualified small business stock (QSBS) income exclusion to 50% for sales after September 13, 2021, for individuals with adjusted gross income of at least $400,000 and for all trusts and estates

These proposed tax provisions are worthing keeping an eye on, as they could impact equity compensation or stock sales. For example, the increase in the SALT deduction would affect tax planning when you have incentive stock options (ISOs) and want to avoid the alternative minimum tax. The surtax on the wealthy would impose a 5% surcharge on modified adjusted gross income (MAGI) of more than $10 million, plus an additional 3% on MAGI over $25 million. That would create the equivalent of a top long-term capital gains rate of 28.8% or 31.8% applying to stock sales.

However, the future of new tax legislation in Congress is not clear enough to provide definite direction for year-end planning, according to the expert panelists who spoke in the myStockOptions webinar Year-End 2021 Financial Planning For Equity Comp.

"The legislation currently in Congress is out of your control," asserted webinar panelist Ally-Jane (AJ) Ayers, a CFP, CEP, and Enrolled Agent who co-founded the financial-planning firm Brooklyn FI in New York. "There's so much we don’t know that at this point in the year, the best you can do is make a goals-based decision or a risk-based decision. We shouldn't make tax decisions about what may or may not happen in Congress this year. The best thing to do is to make decisions about what your family needs for liquidity and financial independence."

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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 2021. 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 2022, 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.

NEW! Year-End Planning 2021: 6 Items For Your Stock Comp Checklist, by the myStockOptions Editorial Team
This article presents year-end ideas to consider from three leading financial and tax advisors with expertise in stock compensation. A special issue for year-end 2021 is whether tax legislation in Congress should influence decisions.

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 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 2021 and the start of 2022. This article presents their responses in their own words.

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 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.

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 popular myStockOptions year-end webinar held on Dec. 2 is now available on demand: Year-End 2021 Financial 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 info, guidance, and expertise for equity comp in both public and private companies. Panelists:

• Ally-Jane Ayers (CFP, EA, CEP), Co-Founder, Brooklyn FI
• John P. Barringer (CFP), Managing Partner, Executive Wealth Planning
• Chun Wong (CPA), Managing Partner, Safe Harbor LLP
• moderator: Bruce Brumberg, JD, editor-in-chief of myStockOptions

Sharpen your knowledge of year-end and year-beginning financial and tax strategies for stock options, restricted stock/RSUs, ESPPs, and company stock holdings to make smarter decisions and prevent mistakes.

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 participants in nonqualified deferred compensation (NQDC) plans, it's time again to make like an autumn squirrel and decide how much to store for the future.

At year-end, many executives and key employees who participate in NQDC plans must decide how much of next year's salary to defer. Factors in this decision about nonqualified plans include the IRS limits that apply to qualified retirement plans (and this year also the outlook for future tax rates under legislation in Congress). Last month, the IRS set the qualified plan limits for 2022.

As explained at our sibling website myNQDC.com, the contribution limits of qualified plans are the major reason for the existence of nonqualified plans: to allow executives and key employees to squirrel away additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

The IRS changes in limits from 2021 to 2022 are relatively small. If you've already maxed out your qualified plan contributions for 2021, you will probably do the same in 2022, so you will need NQDC plans to defer any salary and bonus increases you expect in 2022. Also, depending on tax legislation in Congress, there may be higher tax rates in 2022 and/or beyond, increasing the need to defer income.

Set by the Social Security Administration, the Social Security wage cap will rise in 2022 to $147,000, a slight increase from $142,800 in 2021. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $8,853.60 in 2021 and will rise to $9,114 in 2022. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral, as shown by an FAQ at myNQDC with an annotated diagram of Form W-2 showing where these amounts are included.

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

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

• 35 CE credits for Certified Equity Professionals (over 100% of the total requirement)

• 21 CE credits for Certified Financial Planners (70% of the total requirement)

• 21 CE credits for CPWAs and CIMAs (52.5% 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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