Long-Term Tax and Risk Planning for Your Equity Compensation

Employers are always searching for innovative ways to attract and retain top talent. One effective strategy for doing so is offering equity compensation, or a stake of ownership in the company. The main benefit of offering equity compensation is that it aligns employees’ incentives with those of the company, encouraging employees to think and act like owners. As a result, employees are often more motivated to drive innovation and productivity, and to remain loyal to the company. In exchange, they have the opportunity to significantly grow their wealth as the company succeeds over time.

However, along with the benefits of equity compensation come tax challenges. Different types of equity compensation subject employees to various forms of tax exposure, including short- and long-term capital gains tax, income tax, the alternative minimum tax and more. It’s important to understand how your equity compensation may impact your tax exposure and take steps to mitigate your liabilities. We detail the tax implications of various types of equity compensation and offer proactive tax and wealth planning strategies to help you prepare.