Year-end strategies for stock options and restricted stock

If my exercise or restricted stock vesting is on the last day of 2006, is the income taxable in 2006 or 2007?

Articles on year-end planning

Site enhancements, including MSO Pro Membership for financial and wealth advisors

Backdating impact on employees; Rule 10b5-1 trading plans; hedging ISO stock

AMT reform more likely in next Congress

Corporate services to help you and your employees with tax, financial planning, and life events



Think Twice Insider Trading Prevention Videos: Educate, Entertain, And Jolt Your Employees And Executives

Corporate Focus: Simplifying stock option administration and FAS 123R valuation for venture-backed, privately held, and small public companies. Sign up for a demo today at

Net Worth Strategies: StockOpter Equity Compensation Solutions (



In the season for year-end financial and tax planning, many visitors seek our extensive educational content on these and related topics. Below you will find the text of two FAQs on related to year-end planning, links to our articles about year-end planning, and links to selected new content.

Thank you for your support and wonderful comments during 2006, our best year ever. A few weeks ago we launched a new version of our website, which includes numerous enhancements and design changes. Chief among these is our new Pro Membership for financial and wealth advisors that lets them track and model stock grants for multiple clients, and provides tools for proactive client communications. We even have a new site called, a client portal where financial advisors can choose to give selected clients access to their grant records, calculators, modeling tools, and stored tool results.

In addition to the many users of our site who have become Premium Members, companies, stock plan providers, and financial advisors are also contacting us about:

  • purchasing Premium Memberships in bulk at discounted subscription rates
  • licensing our easy-to-integrate Knowledge Center of content for HR and compensation portals, and for stock plan service providers' websites
  • creating custom websites that import grant data automatically, post stock plan documents, and match the look and feel of your company's site

For more information on these corporate services, please email inquiries to Have a great new year!

 ~ Bruce Brumberg, Editor-in-Chief


Below are two frequently asked questions (FAQs) from the content on year-end planning in our section Financial Planning. They are taken from the 700+ FAQs on All of these 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 year-end strategies for stock options and restricted stock?


This depends on your financial situation, on whether your decisions should be entirely tax-driven, on your outlook for your company's stock price, and on the prospects for changes in tax law during the year ahead. presents a few situations and strategies that many experts suggest, according to what you have done earlier in the year or are thinking about doing. (Of course, you should consult your own financial and tax advisor about your individual situation.)

1. You are planning to sell the stock at exercise late this year or early next year. You should calculate whether the ordinary income will push you into a higher tax bracket. To avoid this, you may be able to spread the same-day exercise/sale over the end of this year and the beginning of next year.

2. 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 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. Look at other FAQs on to help minimize or manage the AMT liability that can arise from ISOs.

3. You want to donate cash or stock. The end of the year is also when many people consider making gifts and donations of company stock, as explained in FAQs on this topic. For company stock you own at least one year, once you understand the tax rules this is often a better approach than first selling the stock and then donating the cash.

4. Your restricted stock vested. Unlike stock options, which you must first exercise, restricted stock gives you no control over the timing of your taxes (unless you 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 of other income. Read about more details and suggested ideas for year-end in this FAQ.

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  • what insider trading is
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  • how SEC investigations are conducted

For more information on the Think Twice video series, and a free white paper on insider trading prevention and education, see Both VHS and DVD formats are available. Qualified corporate buyers, including pre-IPO companies, can request free previews. Intranet licensing is available.

Question 2:

For nonqualified stock options or stock appreciation rights exercised on the last business day of the year, or for restricted stock that vests on that day, is the income taxable in 2006 or 2007?


All exercises with an exercise date during 2006, and all restricted stock with a vesting date in 2006, will be included in 2006 taxes and on your 2006 W-2, and will count towards the 2006 Social Security income limit, which is rising to $97,500 in 2007. (The last business day of 2006 for exercises is December 29, assuming your company's stock plan allows exercises only on business days.) It does not matter that your company will not send the taxes to the IRS until 2007. Check your company's plan and related documents for the exercise notice procedures and rules.

If shares are sold at exercise or vesting, you will also receive a 1099-B for 2006 from your broker. You report this stock sale on Schedule D of your tax return for 2006. For guidance on reporting company stock sales on your Schedule D, see the special section in our Tax Center.

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Two Step SoftwareFAS 123R VALUATION: 
Simplifying stock option administration and FAS 123R valuation

Free white papers and demonstration signup available at

Looking for a way to simplify your stock option tracking? Calculate FAS 123R valuations and expense amortization schedules? Automate complex vesting schedules? Create fully diluted capitalization tables? Corporate Focus from Two Step Software is the answer.

  • Manage all of your stock plan information in one centralized location
  • Record all employee transactions, such as option exercises and employee terminations
  • Report plan summary and option expensing information for any reporting period
  • Retrieve copies of supporting board actions and corporate governance documents
  • Reduce legal and financial risk by ensuring a complete audit trail

Click here to sign up for a free demonstration of Corporate Focus for stock plan administration for venture-backed and privately held companies. For more information and a free case study on how one corporate venture group reined in costs associated with complex capitalization tables and saved executive time, legal fees and IT resources, see

Contact: 800-223-8900 or


Stockbrokers' And Financial Planners' Year-End Secrets (Part 3): What We Tell Our Best Clients, by W.E.B. Bantling and Michael Beriss
By the time your W-2 or 1099 has arrived, it's too late for year-end tax planning. As these financial advisors stress, the time for tax planning is now. This year, several particular concerns apply to employees with options and restricted stock. Read the article, free to all registered users through December!

Ten Ideas For Year-End Stock Option Tax Planning, by Martin Nissenbaum This is premium content
Doing some year-end or year-beginning planning with stock options and company stock? While investment objectives, not taxes, should drive your decisions, this article presents some tax-planning ideas from the National Director of Personal Income Tax Planning at Ernst & Young.

The ISO Tax Trap And The AMT Credit Myth: What To Do Before Exercise And At Year-End, by Alan Ungar This is premium content
Avoid the risks of the alternative minimum tax (AMT) when exercising and holding incentive stock options (ISOs) for long-term capital gains. Read this article by a noted CFP and author of books on financial planning.

Stock Option Financial Planning After Your Tax Return Is Filed And At Year-End (Part 1), by Tom Davison and Liam Hurley This is premium content
Right after you have completed your taxes is a great time to do your big-picture financial planning. At the end of the year, review your analysis and strategy again. Read this article, co-written by financial planner Tom Davison, a member of our advisory board.

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

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After extensive feedback and testing by our site members, we added new features in mid-November and redesigned the home page. Whether you have basic, Premium, or Pro membership, you can now:

  • use the "as of" date features in our calculator for stock options
  • see the vesting details of your stock grants in myRecords from the main listing screen
  • speed up the entry of your grant data into myRecords by quickly copying the details from any other stock grants you entered

Plus, our 700+ FAQs now have links to next and prior FAQs, making them easier to read in sequence as a tutorial that complements our interactive quizzes.

The biggest addition is a new membership level we call (MSO) Pro, specially designed for financial advisors, wealth managers, CPAs, and anyone who tracks and models equity grants for others. MSO Pro gives you the power to track and model grants for multiple clients with our award-winning record-keeper and tools, plus special features for proactive client communications and relationship-building. You can choose a membership level to track and model for 5, 10, 25, or more clients.

MSO Pro gives you access to all the features of Premium Membership, plus:

  • Grant tracking and modeling for multiple clients
  • Grants you have already entered in transfer seamlessly to MSO Pro
  • Client portal where your clients have special access to a confidential, highly secure site to see their grants online
  • Co-branding of your firm's identity in the client-accessible site
  • Grant alerts reminding you of important dates and target values for each of your clients, plus the flexibility to send alerts to selected clients
  • Create and save scenarios for you and your clients from any of the calculations you run in our tools
  • All our exclusive articles by leading experts in financial planning, tax and securities law, and stock-based pay
  • 700+ FAQs on all aspects of equity compensation
  • PDF versions of articles, FAQs, and all tool results that you can send your clients, all co-branded with your name and firm
  • Reports on your clients, individually and in aggregate

Track and communicate with multiple clients

Send grant alerts to yourself and to your clients

Create and save tool results as "scenarios" you can call again with one click

For more information on MSO Pro and to become a Pro Member, contact or click on myClients after signing into the site.

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

Can your company's backdating of stock options limit your freedom to exercise your options, and cause tax problems? Read about this situation in Ask The Experts (free to all registered members of

Can your company force you to use a Rule 10b5-1 trading plan to sell stock? What would happen to your plan after your death? These questions are answered in SEC Law: Rule 10b5-1 Trading Plans.

For your ISO stock, it possible to write call options or buy put options without incurring a disqualifying disposition? Examine this topic in Financial Planning: High Net Worth.

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The alternative minimum tax (AMT) traps almost all higher-income individuals and anyone that exercises ISOs and holds the stock. Under the tax law passed in the late spring of 2006, Congress increased the AMT income exemption amount, saving some taxpayers from having to pay the complex AMT (see related FAQs). This AMT income exemption replaces the personal exemption and standard deduction from the regular-tax system. For 2006, the AMT income exemption amounts are $42,500 for single taxpayers and $62,550 for married taxpayers filing jointly, before any phaseouts.

Tax rates and anticipated changes in the year ahead can impact your year-end strategies. In 2007, without any extension, the exemption returns to the levels of 2000: $33,750 and $45,000. Congress may extend the exemption again, slightly increase it, or perhaps entirely reform the AMT.

According to The Washington Post, Democrats in Congress have promised to make the AMT "a centerpiece of next year's budget debate" (Alternative Minimum Tax Targeted, Lori Montgomery, November 11, 2006). Senator Max Baucus (D–Montana), the expected head of the Senate Finance Committee, and Rep Charles B. Rangel (D–New York), the anticipated chairman of the House Ways and Means Committee (the two main tax-writing committees in Congress), have stated that fixing the AMT is a high priority. Rangel feels it is far more urgent than considering President Bush's request to extend the tax cuts that expire in 2010.

The San Francisco Chronicle predicts no permanent solution to the AMT, given the costs (No Tax Law Changes Expected While Bush Is Still In Office by Kathleen Pender, November 12, 2006). Looking at a range of tax areas, including AMT, estate tax, and rates for long-term capital gains and dividends, the article observes that "most experts say we are not likely to see any major tax cuts, increases or reform as long as Bush is in the White House and the Democrats control Congress."

The Cost-Value Gap And The Case For Personalized Stock Plan Education

Recent research conducted by faculty at the University of Illinois and Michigan State University finds that, on average, executives value their stock option holdings at 40% of the opportunity cost to the company. More important, however, is their finding that this universal "cost-value" gap (see illustration below) can be closed by employing a short but effective equity education program like StockOpter Personalized Education.

Detailed information on the cost-value gap and its significant ramifications are contained in an executive white paper entitled Maximizing The Perceived Value Of Equity Compensation. This white paper and other research can be found at

Do you have a cost-value gap at your company? If you would like to know, we will be pleased to conduct a no-cost assessment for you.  To take advantage of this offer, contact Bill Dillhoefer from Net Worth Strategies at 877-728-5964.

CHANGING YOUR STOCK PLAN? Helps You And Your Employees With Taxation, Financial Planning, And Life Events

Are you switching to granting restricted stock, restricted stock units (RSUs), or stock appreciation rights (SARs)?

Our innovative Knowledge Center is a popular corporate service from that can strengthen your stock plan education, particularly when you are changing your stock plan and making new grants. Companies and stock plan service providers are licensing this package of our award-winning educational content, interactive quizzes, and dynamic animated calculators/modeling tools.

The Knowledge Center and calculators can be quickly and seamlessly integrated into your HR, benefits, or compensation portal. This includes all of our Premium content and features and is automatically updated. No user sign-in is required.

  • Strengthen your stock plan communications and education.

  • Help employees understand and appreciate these new types of stock grants and make smarter decisions.

  • Reduce staff time and expense by letting the content of answer employees' questions about taxes, financial planning, life events, and more.

Select all or a portion of's expert content, quizzes, and calculators. For more information on our corporate services, call 617-734-1979 or email

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