Category: Investing & Tax Planning

SeedSafe Financial is an expert in stock compensation and tax planning. These articles dive into the nuances of stock types and ways to plan for higher income years.

Tax Implications of Moving out of California

COVID changed the way many tech employees work. The option for remote work changed the way many of you think about life and what you want out of life. Instead of waiting until financial independence, or worrying about job opportunities in the new location, you can move to the place you really want to be! For others, many tech firms are moving to second-tier less expensive tech hubs like Tesla moving to Texas.

That might be near family, towards a dream home, or maybe closer to nature and a community you value. What an absolute blessing!

You may take a 10% pay cut from your current employer, but what you get is worth far more than that. Now it comes down to the logistics.

Many of our clients moved in the last year to smaller tech hubs. This allows them freedom of time and money – to be close to family and friends, buy a place to call home, or to just explore a different environment. During this tax season, we found that a few clients are already receiving Requests for Information from the state they moved from. This can be a bit daunting, so we want to share best practices and things to be aware of.

What do the states ask for in a tax request for more information?

Each state can be a bit different in the request, but the goal is to understand whether you are truly a resident or nonresident for tax purposes. They may ask for:

– Official date you changed your status from resident to nonresident

– Documentation that supports this like

Rental agreement / home purchase documentation
Drivers license with date of issue
Voting registration
Updated insurance coverage and established health care in the current location
Offer letter displaying the new location and start date

– Whether you traveled to the state during the year and specific dates of travel

How many of those days were non-working days
How many of those days were working days
Whether you worked remote or in an office locally

The state’s intent is to ensure that income is appropriately allocated from your employment in the state. They are not trying to rob you of hard earned money, even though it can feel that way when you do not know the rules.

How can you prepare for your move to make this easier?

Alert your HR department for the exact date you plan to leave your state fully. Waiting a month or two to update this may mean more income allocated and additional stock compensation accrued to that state on your W-2.
Track your days/time spent visiting in your prior state once you move.
Make it 100% clear where you are. I know it’s a jumble to move across the country (I’ve done it a few times myself), but the longer you wait to establish your presence, the less of an audit trail you have supporting your new move.
Remember that your RSUs or stock options will still have a trail of income allocable to your prior state. Until the stock is recognized as compensation income, you technically earned a piece in your prior state. So even after you leave a state, there is a high likelihood that your next vesting or option purchase will show the allocation back to your prior home.

Moving between states is hard enough. Between packing, shipping, temporary housing, etc there are a million balls in the air. I hope the above information helps you prioritize which ball to catch a bit faster.

The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

Selling your Startup? What the Best Investors Do

Did you know part of your startup sale can be excluded from federal taxes?

A provision in the tax code helps minimizes taxes for the wealthy investor and startup employee upon a stock sale. It’s called the Qualified Small Business Stock (“QSBS”) exemption. Most startup employees have no idea they can use this!

This allows a C Corp shareholder to exclude up to 100% of their gain from taxes, if they meet certain parameters.

To qualify for the QSBS exclusion, five criteria must be met (legal jargon to follow):

1. The stock must have been directly acquired via an original issuance from a U.S. C corporation (Sec. 1202(c)(1));
2. Both before and immediately after stock issuance, the C corporation’s tax basis in gross assets did not exceed $50 million (Sec. 1202(d)(1));
3. The C corporation and shareholders must consent to supply documentation regarding QSBS (Sec. 1202(d)(1)(C));
4. The C corporation conducts certain qualified active trades or businesses (Sec. 1202(e)); and
5. The stock must have been held for more than five years (Sec. 1202(b)(2)).

You can find a tax checklist for the requirements HERE .

Many early stage startups will meet these criteria. If you are FinTech, then you may need to do more analysis to see if you can be treated as QSBS. This goes for the other excluded industries as well.

Once you determine the startup is a QSBS, you can exclude part of the gain dependent upon when you bought the stock.

Federal Exclusion of QSBS Gain

Acquisition Period	Percent Exclusion (Regular Tax)	AMT Add-Back
Before Feb 18, 2009	50	7
Feb 18, 2009–Sept 27, 2010	75	7
Sept 28, 2010 and later	100	0

The remaining capital gain is taxed at a 28% capital gains rate instead of the 15%/20% long-term rate. This may sound like you are worse off, but the benefit comes in the amount of gain you can exclude from the taxable calculation.

Most sales for higher wage earners will trigger AMT. For AMT purposes, 7% of the excluded gain is added back to taxable income for the computation of stock sold before Sept 28, 2010.

You will also need to consider the Net Investment Income (“NII”) tax at 3.8%. This will be applicable under all scenarios when the taxable income threshold is met.

Let’s see how Qualified Small Business Stock works through an example.

Assume you sell your startup and meet the 5 criteria for considering this stock qualified small business stock.
Your regular ordinary income is about $500,000 with your spouse.
Your share of the business gain is $350,000.

Purchase Date: January 3, 2009

Your estimated tax would be calculated as:
$350,000 x 50% exclusion = $175,000 excluded gain
$350,000 – $175,000 = $175,000 taxable gain
$175,000 x 31.8% (28% capital gains rate + 3.8% NII tax) = $55,650 regular tax
$175,000 x 7% AMT add back x 28% capital gains tax = $3,430 additional minimum tax (AMT)

Estimated total tax due on business gain: $59,080
Estimated effective tax % of gain: 16.88%

Purchase Date: January 3, 2010

Your estimated tax would be calculated as:
$350,000 x 75% exclusion = $262,500 excluded gain
$350,000 – $262,500 = $87,500 taxable gain
$87,500 x 31.8% = $27,825 regular tax
$262,500 x 7% AMT add back x 28% = $5,145 additional minimum tax

Estimated total tax due on business gain: $32,970
Estimated effective tax % of gain: 9.42%

Purchase Date: January 3, 2011

Your estimated tax would be calculated as:
$350,000 x 100% exclusion = $350,000 excluded gain
$350,000 – $350,000 = $0 taxable gain
$0 x 31.8% = $0 regular tax
$0 x 7% AMT add back x 28% = $0 additional minimum tax

Estimated total tax due on business gain: $0
Estimated effective tax % of gain: N/A

What if you didn’t claim the Qualified Small Business Stock exclusion?

Your estimated tax would be calculated as:
$350,000 x 20% long-term capital gains rate x 3.8% NII tax = $83,300

Estimated total tax due on business gain: $83,300
Estimated effective tax % of gain: 23.8%

Now that you see the benefits, what do you need to do to claim the QSBS exclusion?

Make sure you have documentation to backup your belief you meet the 5 criteria.

This may include:

proof of initial capitalization at your purchase date (i.e. 3rd party valuation documentation – tying to your 83(b) election valuation)
proof of stock purchase date (stock certificates or copy of check) and
certification from the company that they are a U.S. C Corporation (i.e. IRS Form W-9)

Hire a tax preparer for the year in question. The simplified example above does not include a discussion of how each state may further tax your business gain. They will also make sure they have the documentation to support the QSBS exclusion on file in case of audit.

Where are you in your start-up adventure?

Making the jump from Corporate life to a Startup?
Did you just receive your stock option grant?
Are you thinking about purchasing your vested options?

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If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.

How to Change your Life with your Bonus

Surprise! You received a little extra cash for the year. What should you do with an unexpected or year-end bonus?

A bonus is an opportunity to start a habit that will change your life for the long-term. Many times, we end up spending bonuses on a present to ourselves for all our hard work. Instead, allocate it toward goals that will pay compounding presents to your future-self!

The top four ways to use your bonus for a present to your future-self are:

Pay down high-interest debt
Fund emergency savings
Fund retirement savings
Invest

Pay down high-interest debt

What defines ‘high-interest debt’? In my mind, this is debt that you don’t pay off on a monthly basis and has a higher interest rate than 8%.

List out your high-interest loans and credit cards, the balances outstanding, and what the interest rates are. Stack the debt by highest interest rate and start hacking away. Doesn’t that feel good?

But here is where the habit part starts. Paying off your debt and keeping it paid off are two different things. If you make the decision to pay off your debt, you should also make the choice to keep it paid off. Take another look at your spending habits and put together a budget to make this good feeling last.

Fund emergency savings

Do you have 3 to 6 months of savings on hand for emergencies only? If you think your credit card limit counts, guess again. Having three to six months worth of savings is vital in today’s economy. You may bounce around from job to job more often or decide you need a sabbatical to check back in with yourself. Not having this money available for breathing space wreaks havoc on your emotional well-being.

Fund retirement savings

Do you have a 401(k)? Are you making the maximum contribution? If not, this is a chance to save for your future self and reduce your taxable income. Cha-ching!

Invest

A lot of articles I read are focused on setting the right tone with budgets and savings. What do you do for your longer term savings goals? Maybe you want to take an international trip in 5 years, provide for your children’s college fund, or invest extra money so you have more options in the future.

Long-term success requires investments in yourself and in the financial markets.

Little tweaks now create huge differences later. The benefits of compounding interest and gains can change your life. Check out our philosophy on long term success HERE.

S chedule a free consultation to see how we can help.

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What should I know (and ask) before hiring a financial advisor?

In lieu of my usual weekly post, I thought it would be helpful to share some content from The National Association of Personal Financial Advisors (‘NAPFA’).

The financial advising world is full of different ways of making money from clients, with some ways more transparent than others. Some advisors use commissions from investment sales to primarily pay themselves (sometimes up to 8%!) and others use a percentage of assets (AUM) only.

NAPFA is kind enough to offer resources to the public detailing great questions to ask potential advisors, how to obtain a full picture of your advisors compensation, and what is important about having a fiduciary in your life.

If you are considering a financial advisor, take advantage of these resources HERE.

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.

RSUs in your investment portfolio

If you receive a large grant of RSUs or company stock, you will have many risks. Risk of termination before vesting, risk of market volatility in stock price, and asset concentration are a few. You will need to decide whether you will keep the stock once vested, or if you prefer to sell the stock at vesting date.

Concentrated Positions

A concentrated position occurs when you have a large amount of your finances wrapped up in one company. This can cause problems by increasing risk in your portfolio, causing tax issues, and liquidity needs. These risks compound if you have a long time horizon for your investment or your tolerance for risk in your financial plan is different.

Holding onto your company stock can leave you very dependent on one company’s success.

Chances are your salary, your 401(k) match, and your stock compensation are all tied to one company. This one company can ‘make or break’ your future financial freedom based on how well they do.

Example: If a competing product comes out, this may drop your stock value and require lay-offs longer term. Many smaller tech companies realize this pain when Amazon or Google announce a competing tool. The stock can plummet by 50% within a week.

Example: If a company ends up like Enron or WorldCom, then the drop may even be worse – wiping out your earnings and stock value completely. It may be hard to think this could be your company when we tend to be overconfident when we have an insider perspective on our employer’s prospects.

In these price drop scenarios, you may have paid significant taxes on the vested stock already as well.

On the flip side, if you hold on to the shares and the company goes gangbusters, you may also have significant capital gains accruing. Selling the entire position may not be tax-efficient and cause you a different headache.

Diversification

Holding a large position in one company stock exposes you to higher risk of large movements in the stock price from day to day. Diversification is used to help investors choose a portfolio that offers the best return for a given level of risk. Why take on more risk than is necessary to achieve a given level of return?

A diversified portfolio is based on academic research into the disciplines of economics and finance. Research holds that investing in many different asset classes (i.e. emerging markets, U.S. large cap funds, etc) and in many companies within an asset class will reduce your investment risk. This seeks to avoid damaging investment performance by the poor performance of a single company stock or asset class.

At SeedSafe Financial we practice diversification for long term success. Find out more about our investment management services and consider giving us a call.

Find out how diversified your portfolio is through our free online tool.

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.

Stock Options and the Alternative Minimum Tax

Alternative minimum tax (“AMT”) is a hard proposition for many tech employees. When you exercise incentive stock options it increases your net worth, but you don’t actually get any cash. This puts you in a tough spot for paying any AMT later on. This is an important topic for start-up tech employees with a stock option plan and it is easy to miss.

Incentive stock options (“ISOs”) are qualified stock options available under a company stock option plan. They must be held one year from the date of exercise and two years from the date of grant. Otherwise, they are considered non-qualified stock options (“NQSOs”). ISOs receive favorable long-term capital gain tax rates upon sale instead of ordinary income rates. However, in the year you exercise ISOs, you may be subject to the the alternative minimum tax.

A basic discussion of what happens when you exercise an ISO can be found at How to Report Stock Options on Your Tax Return

At year end, your company will report your ISO exercise on IRS Form 3921, per the stock option plan requirements. The IRS and you will receive a copy shortly after year end. This form will help you and your accountant complete the AMT calculation for your annual tax return.

What is AMT?

AMT is an alternative tax system that takes your regular taxable income from Form 1040 and makes adjustments for special items. ISOs are one of those adjustments. The adjustment amount is calculated as the difference between the value and exercise price at the time of exercise.

Other adjustments generally include state and local taxes paid, real estate taxes, interest on home equity loans, etc. This is a complex calculation and we are discussing a high level view in this post.

This generally results in a higher alternative minimum taxable income (“AMT income”) that is subject to either a 26% or 28% tax in the year of ISO exercise.

When you sell your ISO shares, this will decrease your AMT income for the year of sale and reduce your AMT liability below regular tax. As a result, the AMT credit produced from the exercise can then be used to recapture a portion of the AMT you previously paid.

When does AMT apply?

The AMT income exemption amount for married filing joint at $133,300 or single at $85,700 (for 2024). This begins to phase-out for higher earning households at $1,218,700+ joint or $609,350+ for single.

AMT is generally applied to AMT income at a 26% to 28% tax rate. The tax bracket raises at $206,100 for both married filing jointly and single taxpayers.

Confused yet? This is why tax accountants and experienced advisors are so important for tech employees!

How do I minimize AMT?

A few ways include:

Determine the number of ISOs you can exercise without generating additional AMT liability. This ‘AMT cushion’ amount utilizes the difference between regular tax and calculated AMT tax. If a cushion exists, consider exercising ISOs toward the end of the year when you have a better estimate of taxable income.
Exercise ISOs and sell qualified ISOs in the same calendar year. This ‘ladder’ approach works with ISO exercises over a few years and may significantly reduce the overall AMT you pay over time.
Exercise ISOs and exercise NQSOs in the same calendar year. This will increase taxable income and AMT income at the same time and may reduce the difference under these two tax systems.
Use a prior year AMT credit. An AMT credit is a little convoluted in calculating. In general, this is a credit for the difference between regular tax and alternative minimum tax in the year AMT is paid. When your regular tax liability is higher than your AMT tax liability, you may use a prior AMT credit against your regular tax liability.

If you work for a public tech company and already exercised ISOs at the beginning of the year, look at the prices again. You may be able to do something similar to ‘exercise ISOs and exercise NQSOs’ by selling those earlier 2024 exercises and disqualifying them. When you disqualify an exercised ISO, the stock sale becomes compensation income similar to NQSOs and may open the door for exercising and holding way more shares. Of course, this also depends on your risk level and what you can personally do based on the market environment and your own emergency needs.

Where are you in your start-up adventure?

Looking for more information on how to negotiate your next compensation package?
Evaluating your current company offers?
Or did you just receive your stock option grant?
If you were recently terminated, review what to do with stock here.

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If you live in a state with its own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns. If you live in a state with its own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.

How do trading restrictions affect you?

Are you subject to restrictions in selling your company stock?

Many public companies, like Amazon, institute ‘trading windows’ for key employees and executives.

Whether you are a ‘key employee’ generally boils down to access to company profit and loss details. Profit and loss access generally includes: an executive with control over a piece of the income statement or department backend data access to revenue amounts and metrics. These key details may influence the company’s stock price once made publicly available.

A key employee with this insight may trade company stock ahead of the earnings release and profit from the transaction.

Thus, trading windows generally occur after released earnings reports.

What does this mean for you?

The Problem: Many employees decide to sell stock to pay for important expenses or to reduce risk. Employees may wish to buy additional stock based on their understanding of where the company value will be longer term. It may not be ideal for them to wait until a trading window opens.

The Solution: Create a trading plan (SEC Rule 10b5-1).

A trading plan allows you to establish a buying or selling program for your vested company shares over a specific period of time. The plan is then approved by the company and implemented by you.

These plans are very specific in detail to minimize trading flexibility and you may not deviate from the plan instructions, but they do help you through the trading restrictions you are otherwise subject to.

Why should you sell your company stock, anyways?

Find out what RSUs or company stock does to your investment portfolio.

Once you sell your stock, what is next?

Why building a financial home is so important
When you may need to bring in some help

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.

Our Attention Span and Money

The average attention span and short-term memory recall has declined over the last ten years. Some say it’s due to our ability to look up anything we need so our brains no longer find it a vital function.

Either way, I have strong memories of 9-11 and the 2008 crash. I can remember exactly where I was, what the room looked like, who was around me, etc. Why do I remember the bad instances so much more?

Human psychology is so much more focused on the bad due to evolution. Those who remembered the poison berries another ate lived longer. Remembering bad moments in great detail allowed us to survive a longer time.

Thanks evolution – you take away my good memories and attention span and leave me with the bad ones?!

So what does this mean for today’s millennials?

We remember what it felt like and what is looked like, but we didn’t know the problems were primarily at home, and not worldwide.

The table below is a great example of how different types of stock (U.S. large stocks, U.S. small stocks, emerging markets, international, real estate, etc) can widely differ in performance from year to year.

Follow the S&P 500 (U.S. large companies stock) for example. In the late 90s the S&P 500 was on a roll, and then when 2000 hit it became one of the worst performers for the year. Each year is different and you won’t always know what makes it out on top.

Looking at the changes in this 10 year period of time, I can only imagine how frustrating it must be for new investors. How can you consistently pick the right asset classes for greatest return?

In my mind, you can’t. This is why I believe markets are efficient and few investors can outperform, because it is all priced into the stock over time.

This allows me the freedom to ask: how do I protect and maximize my return while reducing the likeliness of large jumps like the S&P 500 in the above table? I do this by holding a portfolio of many types of stock. When one type dips, I have another that may rise in value or help counteract the effect. Thus providing a more stable return over time.

So what about keeping my money in all cash? There is no risk to that, right?

I am all for maintaining an emergency fund based on your lifestyle and needs in cash. I also believe large expenses in the next few years are better left in cash.

However, I do believe there is a strong argument for investing into the stock market to combat long-term inflation.

Remember when you could get gas in the 90s for less than $1.00? Remember when bread was less than $1.00 and you could scrape together a lunch with the change you found in your parent’s stash?

The changes over the last 20 years are a prime example of what could happen to your cash pile over the next 20-30 years. In fact, we’ve seen inflation every decade since the 1940s and only over the last three years did it momentarily slow down.[1]

Our memories can be fickle friends and keep us from making good long-term decisions. Adding to an already emotional topic – money.

If you are interested in talking to someone about growing your wealth, start now and schedule a time for your free 30 minute consultation with me.

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______

[1] For more information and a great chart, check out InflationData.com, “Average Annual Inflation Rates by Decade” by Tim McMahon on June 18, 2015

This post was inspired by the article in The New York Times, “Praise Is Fleeting, but Brickbats We Recall” by Alina Tugend: March 23, 2012 and the book Moonwalking with Einstein: The Art and Science of Remembering Everything by Joshua Foe

bias CFP Financial Advisor investing Investment Management millennial money

How to make an 83(b) election for your company stock options

Updated September 12, 2025

What is an 83(b) election?

An 83(b) election is an IRS filing that lets you (if your stock-option or RSU agreement permits) “early exercise” shares for tax purposes. By filing it within 30 days of early exercise, you start the tax‑counting clock immediately, giving you a chance to qualify for long‑term capital gains sooner.

At SeedSafe, we believe financial strategy should bring clarity and peace, not confusion. Think of an 83(b) election as a time machine for your tax life – iit can be empowering, but only if used with intention. This is for information purposes on the mechanics of making the election.

Can I make an 83(b) election?

Before making the election, it is important to understand whether your stock option agreement allows this. Your company, or the company attorney, should share an 83(b) election form (IRS Form 15620) with you, if you are eligible. You can also look at your stock option plan documents to see if it allows for “accelerated vesting” of your options or RSUs.

The election must be filed with the IRS within 30 days of the date you receive the shares (grant or exercise, depending on plan terms). So don’t delay – you have a time limit!

What is accelerated vesting?

“Accelerated vesting” in your plan gives you the option to buy your equity now – rather than waiting years for it to vest. Filing the 83(b) election means you’ve taken constructive ownership today, which may, in certain circumstances, result in lower taxable income compared to waiting until vesting, depending on company growth and your tax situation.

Please review your stock option agreement and talk to your finance department to find out if you are eligible for this election.

What are the pros and cons of an 83(b) election?

Pros:

Starts the long-term capital gains holding period at the time of the election rather than at vesting
- Incentive Stock Options (ISOs): possibly smaller or no bargain‑element income for AMT purposes
- Non‑Qualified Stock Options (NQSOs): potential reduced ordinary‑income recognition at exercise
- Restricted Stock Units (RSUs): could, in some cases, reduce the amount of income recognized at grant.

Cons:

Immediate cash outlay: you must pay for shares now
Partial elections can jeopardize ISO status: given the $100,000 option‑value limit
Company separation may require forfeiture: even if you already paid for the shares or paid taxes
State tax differences: not all states honor federal 83(b) treatment the same way

How do I make the 83(b) election?

Understand the tax consequences: Will you need to recognize any income on these shares? fair-market value minus purchase price = gross income. You may owe taxes on this amount. This amount is something you may owe taxes on, depending on the situation.
Pay for your company shares: Early exercise demonstrates ownership and reduces IRS risk of forfeiture.
Complete the IRS Form 15620 (the Section 83(b) Election Form) within 30 days of receipt of the shares: Your company should give instructions, but you’re responsible for filing on time.
Include a copy of the form to be stamped and returned to you for proof of filing.
Mail the forms to your IRS office you would send a personal tax return to.
Take the package to the U.S. Post Office and attach a Certified Return Receipt (example here). This receipt will serve as proof of the post-stamp date in case the IRS claims you did not send it within the 30 day period.
Keep good records, just in case: You most likely won’t be selling the shares for a few years, so good record keeping can make all the difference!
1. Original signed 83(b) Election Form (IRS Form 15620)
2. Original Certified Return Receipt
3. Copy of Cover Letter
4. Copy of Check for Shares
5. Stamped IRS returned copy of signed 83(b) Election Form (once you receive it in the mail)

In Summary

What: 83(b) lets you accelerate the capital-gains timeline on equity
Why: To change the timing of taxable income, which may in some cases result in different tax outcomes.
When: File within 30 days of grant date
How: Pay for shares, file Form 83(b), send certified mail, keep every piece of proof

Who Benefits From This Post?

We wrote this for growth‑minded tech professionals and value-driven families at life transitions—like early founders, creators of enduring legacies, and people who care about aligning money with meaning. This isn’t just about tax efficiency; it’s about creating spaciousness and choice, rooted in financial clarity.

If you’d like help thinking through whether an 83(b) election is right for your situation – or want a gentle, judgment‑free review through the emotional texture of this decision – we’re here to help you steward both your heart and your financial life with wisdom and trust.

This post is for informational purposes on the mechanics of the election. Discuss whether making the 83(b) election makes sense for you with your accountant or financial advisor.

Where are you in your start-up adventure?

- Looking for more information on how to negotiate your next compensation package?

- Evaluating your current company offers?

- Or are you exercising stock options?

This material is for informational and educational purposes only and should not be considered tax, legal, or investment advice. Please consult your own qualified professionals before making financial decisions, including whether to file an 83(b) election. Links to third-party websites, including IRS.gov, are provided solely for convenience and informational purposes; we do not control, endorse, or assume responsibility for their content.

Offer Letter Basics: RSU taxes and how it works

Revised as of January 2024

How do you evaluate an offer from a large tech startup or established tech company like Microsoft or Google? The first step in evaluating your offer is to understand it! Below, we discuss one of the components of your offer letter – how Restricted Stock Units (RSUs) and RSU taxes work.

Restricted Stock Units (RSUs)

Structure: Each RSU equates to a share of the company stock. ex. 1 Google GSU = 1 GOOGL stock.

Value: RSU value is tied to the price of the actual traded stock price. RSUs are a little different than stock options, and have an implicit value above $0. As long as there is a stock price at vesting, then your RSUs have value.

Vesting: The initial RSUs grant generally vest over a few years with a 1-year cliff. The 1-year cliff requires you to be an employee for at least a year before receiving any portion of vested stock. At vesting RSUs are taxed.

RSU Taxes:. At the time of vesting, withholding for taxes is made. Depending upon your overall income level, this may or may not be enough to fully cover your tax bill at tax return time. Federally, the withholding tax rate on stock compensation starts at 22% and then converts to 37% on stock compensation above the $1 million mark.

Other general vesting requirements/rules:

Look at the small print – when you terminate employment, vesting stops immediately.
If you are considering parental leave, look to see if your RSUs stop vesting during any non-paid leaves.
Unlike stock options, your RSUs become actual shares at vesting and do not expire like stock options would.
Think the company will go gangbusters over the next few years? Review your incentive stock option plan to understand if you may make an election to pay tax on the value of the RSUs now (Section 83(b) election). Talk to your accountant or financial advisor, since this does come with significant risks.
Trading window: once your RSUs vest into stock, you will only be allowed to trade the stock at set windows through the year. This prevents insider trading. If you have a large set of RSUs vesting, you may decide to make a 10b5-1 trading plan for regular scheduled sales over a period of time.

1 Year Cliff Taxation: RSUs are generally taxable as ordinary income when vested. The first year this happens can be a bit of a shock for some. Watch our YouTube video HERE for a visual breakdown of what will happen.

Single Trigger vs Double Trigger RSUs: RSUs can have different vesting requirements. Most private companies offering RSUs provide ‘double trigger’ RSUs. These require time vesting and an exit (IPO, acquisition, etc) before the RSUs fully vest to you and become compensation income. If you have double trigger RSUs, check out this blog post for more information.

What are the main issues surrounding RSUs?

When you are negotiating your offer – most of the time they will have an internal analysis to support RSU and salary trade-offs. As long as they keep within the boundaries of the model, then your ‘target compensation’ will be the same, from their view point. This allows you to toggle up or down your own risk level.

So how do you feel about RSUs vs. cash salary? Keep these things in mind when weighing your options.

Cash flow impact: Withholding RSU taxes are usually paid through a portion of RSUs sold at vesting. These taxes paid are generally displayed on your W-2 as part of your total tax withheld. Most larger tech companies will offer a signing bonus to help you transition to the RSU schedule for the first year. The goal of this sign on bonus is to act as additional incentive to wait for the 1 year cliff vesting date.

Investment strategy: If you receive a large grant of RSUs, you will have many risks. Risk of termination before vesting, risk of market volatility in stock price, and asset concentration are a few. You will also want to decide if you will be keeping the stock once vested, or if you prefer to sell the stock.

Evaluating many offers: Evaluating RSUs and stock options 1 to 1 is generally not appropriate. Employees will generally receive fewer RSUs than stock options since RSUs do not depend on company performance to the same degree. Evaluate your options with your accountant or financial advisor..

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