Harvest Your Equity: Avoid Tax Traps and Bring Home the Most Money from Employee Stock Options and RSUs

By Evan McDonnell

Stock options and restricted stock units (“equity awards”) are a powerful incentive that can pay off big. But not understanding how to manage them can cost you big as there are significant income tax landmines and financial planning issues to navigate. Just like a farmer wants to harvest his crops at their peak and before a plague of locusts arrives, you want to “harvest” your equity awards when it will produce the best yield and avoid sacrificing too much to our version of the plague of locusts, the Internal Revenue Service. it’s not how much you’re granted that matters, it’s how much you keep!

This book provides employees of companies that provide compensation in the form of equity awards with the knowledge and tools to quickly navigate the tax, cash flow, and financial planning issues involved. This book is intentionally short. I’m not going to teach you the theory behind equity awards or why certain taxes exist. Tax laws are what they are and you’re not going to change them. But I will explain what taxes kick in when and for how much and the things to consider in exercising options and selling stock. My goal is to help you get to the right answers for your situation with as little effort as possible, so you walk away with the most money. Consider this a “do it yourself” kit. If you already prepare your own taxes with TurboTax or similar software, you probably don’t understand all the details, but you come away with a high level of confidence they were prepared accurately based on your inputs. You may even prepare your own taxes with software and then go meet with an accountant to get an expert’s set of eyes and make sure you didn’t miss anything big.

• Language: English
• Publisher: Evan McDonnell
• Release date: Sep 5, 2020
• ISBN: 9781005081973

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Harvest Your Equity - Avoid Tax Traps and Bring Home the Most Money from Employee Stock Options and RSUs

Written by Evan McDonnell

Copyright 2020 Salida Ventures, LLC

Published by Salida Ventures, LLC at Smashwords

Smashwords Edition License Notes

This ebook is licensed for your personal use only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your enjoyment only, then please return to Smashwords.com or your favorite retailer and purchase your own copy. Thank you for respecting the hard work of this author.

Table of Contents

Why I Wrote This Book

Disclaimer

Introduction

Chapter One – The Horror Scenario You Want to Avoid

Chapter Two – A Short Primer on Equity Awards

Chapter Three – A Short Lesson in Taxes

Chapter Four – Three Typical Scenarios for Evaluating Strategies

Chapter Five – Strategies for Harvesting Stock Options to Maximize Gain and Minimize Taxes

Chapter Six – How Many Options Can I Exercise Without Having to Pay AMT?

Chapter Seven – Selling Shares to Increase the Amount You Can Exercise AMT Free

Chapter Eight – Deciding When to Sell Your Shares

About the Author

Why I Wrote This Book

My career has included positions in software and technology companies at almost every point of the corporate lifecycle. I worked at startups that flamed out, startups that did well and got acquired, leveraged buyouts, companies that went public during my tenure, and larger companies already public before I arrived. I had equity as part of my compensation in all of them. Every time there was a harvest event such as an acquisition where my equity was automatically converted to cash, or my own decision to exercise stock options or sell shares of stock, there seemed to be a new income tax wrinkle that usually had an unexpected negative impact. These drove me to my accountant’s office as the self-help resources were limited to instruction pamphlets from the IRS or long books that were more about designing equity award programs than managing your way through them.

Cash flow and financial planning issues came up as well. I once had to quickly come up with the cash to exercise stock options right after I was laid off in a tech downturn with the return of a steady paycheck uncertain, or face losing options that I knew were valuable. I watched as my peers who didn’t obtain wise counsel around those issues made poor decisions (or failed to make any decision) and it cost them big.

I realized after the latest round of trips to my accountant’s office that I finally had enough knowledge to navigate most of these issues on my own and could also summarize the information to help others. I challenged myself to do it and the result is this book. I hope you