What are the tax implications of equity compensation?

What are the tax implications of equity compensation?

Equity compensation can have various tax implications depending on the type of equity you receive, such as stock options or restricted stock units (RSUs). Generally, you may owe taxes when you exercise options or when RSUs vest.

How are stock options taxed when I exercise them?

When you exercise stock options, the difference between the exercise price and the fair market value of the stock is considered income and is subject to ordinary income tax. Additionally, if you sell the stock later, you may owe capital gains tax on any increase in value.

What about RSUs? When do I pay taxes on those?

For RSUs, you typically pay taxes when the shares vest. The value of the shares at vesting is treated as ordinary income and is subject to income tax.

Are there any strategies to minimize taxes on equity compensation?

Yes, some strategies include holding onto your shares for a longer period to benefit from lower capital gains tax rates, or utilizing tax-advantaged accounts. Consulting a tax advisor can help tailor strategies to your situation.