As Halloween Approaches, Ideas To Make Year-End Planning Less Scary
Year-End Planning With Stock Options And Restricted Stock Amid Tax-Rate Uncertainty
What's more frightening? Halloween, the mid-term elections next week, or the lingering uncertainty about the federal tax rates after 2010? Whatever the case, it is once again time to think about year-end financial and tax planning for stock options, restricted stock, RSUs, and holdings of company shares.
Evaluating your year-end tax situation will, of course, be harder than usual this time because a fog of uncertainty still clouds the post-2010 tax landscape. The results of the mid-term elections may affect taxes in many ways (see the latest memo on this topic from Deloitte). Unless you were already planning to sell company stock or exercise options soon, e.g. because options are close to expiration, many experts would tell you that the likelihood of higher tax rates ahead should not be the only reason for selling or exercising at the end o f 2010.
If you do sell appreciated stock before year-end and soon afterwards buy stock in the same company, be wary of the rule about wash sales. As we explain in our detailed FAQ on avoiding wash sales, the rule applies only to stock sold at a loss. This means you can sell the shares and soon repurchase without wash sale problems as long as you sell the shares for a gain.
We have updated all of the year-end content on myStockOptions.com, including the articles and FAQs in the section Year-End Planning. These include a new article especially on year-end planning for employee stock purchase plans. We will continue to update our content as details emerge about post-2010 tax rates and about the AMT income exemption amounts for 2010.
Using Stock Comp With Roth IRA Conversions
Our latest article series, in two parts, takes on one of the hottest topics in personal finance today: Strategic Planning With Roth IRAs And Stock Compensation by Sue Stevens, a noted wealth advisor and the former director of financial planning at Morningstar. Anyone can now convert a traditional IRA to a Roth IRA, and for a conversion in 2010 you can split the taxes due over 2011 and 2012 (50% each year). Part 1 explains the rules of converting traditional IRAs to Roths, discusses the role that stock compensation can play, and examines related planning issues. Part 2 presents a detailed case study. These articles enhance our extensive content on the use of stock compensation in retirement planning.
New Rules For ISO And ESPP Statements
New Section 6039 reporting rules for companies are effective, starting with transactions in 2010 that will be reported in January 2011. In addition to providing an information statement to the employee, companies must now file information returns with the IRS: Form 3921 for ISO exercises in 2010 and Form 3922 for ESPP purchases in 2010. The new rules also list what the IRS will require in the statement that you receive and in the information return, which differs in some ways (particularly for ESPPs) from the statement companies used to give employees. However, not all the information tracks neatly with your tax reporting, a topic we will cover in mo re detail in our related FAQs.