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Equity compensation is a non-cash compensation employers offer to employees which gives ownership in the company. It could be anything from stock options, restricted stock units, performance shares or more.
While you can ‘set it and forget it’ with a w2 job as it relates to taxes, equity compensation works a little differently. Each type of equity compensation has different tax consequences.
Yep, it’s the ‘t’ word again. For instance, one tax you need to be aware of is when your stock fully vests, this is a taxable event. Additionally, if you hold the stock after the vesting period, and there’s a little gain on the stock there is another tax you have to pay.
What the company withholds in taxes from these events may not be enough to cover the tax bill, which could lead to a penalty. To avoid a surprise tax bill, think about incorporating quarterly tax payments to your tax strategy.
As a reminder, these payments are due on April 15, June15 , September 15, & Jan 15th of following year While Federal tax is very important to pay on time, so is state tax! Don’t forget to factor in the amount your state requires.
Taxes can suck the fun out of equity compensation, but there’s still room for fun if you plan ahead.
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Rianka R. Dorsainvil, CFP®️ is the Co-Founder and Co-CEO of 2050 Wealth Partners a virtual, fee-only comprehensive financial planning firm dedicated to serving first-generation wealth-builders, entrepreneurs, and thriving professionals. Rianka also hosts 2050 TrailBlazers, a podcast aimed to address the lack of diversity in the financial planning profession by engaging industry experts and leaders in conversation.
As an award winning successful, millennial Certified Financial Planner professional, Rianka offers a unique perspective not only on the current state of the financial service industry, but on how to stay relevant in an ever-changing world.
Rianka serves as a member of CNBC’s Digital Financial Advisor Council and CFP Board’s Diversity Advisory Group, is a Forbes Personal Finance Contributor, and has been recognized for her accomplishments and leadership within the industry by leading publications and organizations such as Investment News’ inaugural 2017 Women to Watch Rising Star and Wealth Management’s Ten to Watch in 2018. She has been published in PBS NewsHour, Forbes, USA Today, Black Enterprise, CNBC, Women’s Health, and more.