Brant Cavagnaro, CFA, CFP®, ECA and Joe Orff, CFA, CFP®

The tax management of equity compensation holdings can have a major impact on your long-term financial plans. Understanding the implications of common stock options is important for understanding how to prepare and avoid common equity compensation tax mistakes.

Deciding when to sell equity compensation is a major financial decision, often driven by a mix of personal and strategic factors. Some employees and executives sell to diversify their portfolios and reduce the risks of being too heavily invested in a single company, while others seek to use equity sales to fund major life goals, such as buying a home or securing financial independence.

The valuation and exercise of stock options with privately held companies introduces unique complexities for investors. In this Insight, I will review some key considerations with a focus on the main differences between common types of equity compensation and their implications for taxes.