TL;DR Answer Box
Equity compensation is either a brilliant windfall or a minefield, depending on whether you track your key dates. If you’re juggling RSUs, ISOs, NSOs, or ESPPs, you need your grant, vest, exercise, sale, and expiration dates mapped in advance.
- Track the 4 critical dates: grant, vest, expiration (options), and taxation (vest/exercise/sale).
- Avoid tax traps: ISOs can trigger AMT; NSOs can spike W-2 income at exercise; RSUs are taxable at vest whether you sell or not.
- Use rules, not emotion: pre-decide hold vs. sell, and consider a compliant selling framework (e.g., 10b5-1) if you have restrictions.
Last updated: January 29, 2026
Introduction
Equity compensation is either a brilliant windfall or a minefield, depending on how you play your cards.
If you’re juggling RSUs, ISOs, NSOs, or ESPPs, you need to know your key dates like you know the passcode to your phone. Ignoring those dates is like leaving your house unlocked overnight.
Think of equity comp like planning a road trip. You need to know when to hit the gas, when to refuel, and what roads lead to heavy traffic,aka tax traps.
Let’s break it down.
🔥 When Do Your Shares Actually Belong to You?
Every equity award comes with its own timeline. Missing key dates is like missing a crucial turn, you could lose money, miss opportunities, or invite tax penalties.
- Grant Date: The day your company promises you shares. It’s not real yet, it’s a future benefit.
- Vesting Date: You officially own the shares (or the option becomes exercisable). Taxes may now be in play.
- Expiration Date: For stock options. If you don’t act before this, your options can vanish.
- Taxation Date: Could be at vesting, sale, or exercise, this is when Uncle Sam gets involved.
Most equity plans follow a four-year schedule with a one-year cliff:
- Year 1: Nothing yet.
- End of Year 1: 25% vests.
- Years 2–4: Remaining 75% vests monthly or quarterly.
If you have ISOs or NSOs, vesting isn’t enough, you must exercise to own the shares.
🔹 What to Do
- ✅ Mark your vesting dates (calendar, spreadsheet, reminders, whatever works).
- ✅ Decide ahead of time: hold or sell, based on goals like home buying, work-optional planning, or diversification.
- ✅ Scenario plan: map best-, worst-, and base-case outcomes (price, tax, and liquidity).
⚖️ The Tax Game: Play It Smart or Get Played
Tax surprises can wreck your equity gains faster than a market crash. Here’s the core tax logic by award type, and the most common traps.
Quick Breakdown
- 🎉 RSUs: Taxed as regular income when they vest (even if you don’t sell).
- 🎉 NSOs: Taxed when exercised on the difference between the stock price and strike price (typically W-2 income).
- 🎉 ISOs: No regular tax at exercise, unless AMT kicks in.
- 🎉 ESPPs: Can have favorable tax treatment if holding periods are met; your plan’s discount and rules matter.
ISOs: The AMT Ambush
ISOs look great until AMT sneaks in. A few planning principles can reduce surprise:
- Exercise in a year where income is lower (if possible) to reduce AMT pressure.
- Model exercises in smaller tranches instead of all at once.
- Know your liquidity plan so you’re not forced into bad sales timing.
NSOs: W-2 Spikes at Exercise
NSOs are commonly taxed as W-2 income upon exercise. If you exercise too much in one year, you can push yourself into higher brackets and trigger secondary taxes and phaseouts.
- Spread exercises across years to smooth income and reduce bracket jumps.
- Pre-plan withholding so you don’t get hit with an April surprise.
RSUs: Taxed at Vest Whether You Sell or Not
RSUs create taxable income at vest. If you hold and the stock drops, you can end up paying tax on a higher value than what you can actually realize later.
- If you’re not intentionally bullish (and sized appropriately), a vest-and-sell approach is often the cleanest risk move.
- Use proceeds to reduce concentration risk and fund goals with a timeline.
10b5-1 Plans: Automate Selling and Remove Emotion
If you have blackout windows or insider restrictions, consider a rules-based selling approach, often via a 10b5-1 plan. The goal is to:
- reduce decision stress
- avoid emotion-driven trades
- create consistent diversification and liquidity
If your income fluctuates, timing RSU sales in a lower-income year can save thousands in taxes. The key is planning the sequence, not reacting in the moment.
Making Sense of Vesting (Your 10-Minute Action)
Take 10 minutes today: open your calendar and mark your:
- grant dates
- vesting dates
- option expiration deadlines
- anticipated tax events (vest/exercise/sale)
Whether it’s your phone, spreadsheet, email alerts, or sticky notes, track these milestones.
This isn’t just admin work. It’s part of owning your equity strategy.
A good advisor can help track and model this, but knowing it yourself means better decisions and fewer surprises.
The market won’t wait. Neither should you. Missed opportunities in equity comp can cost a fortune.
- ✅ Be intentional.
- ✅ Prioritize tax efficiency.
- ✅ Align your moves with long-term goals.
Future you won’t be mad you prepared.
Until next week!
Key Takeaways
- Equity comp is a system of dates + decisions; miss the dates and you invite costly outcomes.
- RSUs are taxed at vest, NSOs are taxed at exercise, and ISOs can trigger AMT.
- Pre-commit to a hold/sell plan tied to goals, concentration risk, and liquidity needs.
- Rules-based selling (including 10b5-1 where appropriate) reduces stress and improves consistency.
FAQ
1) What are the key equity compensation dates I should track?
At minimum, track grant, vest, exercise (options), sale, and expiration (options). Add blackout windows, trading windows, and any post-termination exercise deadlines if you have them.
2) If my RSUs vest but I don’t sell, do I still owe taxes?
Yes. RSUs are generally taxed as ordinary income at vest whether you sell or not. If the stock drops after vesting, you can end up paying tax on a value you no longer have, one reason many people use a vest-and-sell approach unless they intentionally want concentrated exposure.
3) What’s the biggest tax risk with ISOs?
The big one is AMT (Alternative Minimum Tax). Exercising ISOs can create an AMT adjustment based on the “bargain element” (spread between fair market value and strike price), even though there may be no regular tax due at exercise.
4) Why can NSOs create an “April surprise” tax bill?
NSOs are commonly taxed as W-2 ordinary income at exercise on the spread. If withholding is insufficient (or you exercise a large amount), you can owe more at filing time. Planning exercise size and withholding ahead of time helps avoid surprises.
5) Should I hold or sell when equity vests?
There isn’t one right answer. The decision should be tied to (1) your concentration risk, (2) upcoming cash needs, (3) your tax bracket and timing, and (4) your confidence in the company relative to owning a diversified portfolio. Many high earners default to “sell-to-target” (sell enough to maintain a chosen % in company stock).
6) What is a 10b5-1 plan, and who is it for?
A 10b5-1 plan is a pre-scheduled, rules-based trading plan often used by insiders or anyone with frequent blackout windows. It can help automate sales, reduce emotion, and improve compliance, assuming it’s implemented correctly and consistent with your company’s policy and legal guidance.
7) What happens to my options if I leave the company?
Many plans shorten your ability to exercise after termination (often around 90 days for ISOs, but plans vary). Missing that window can cause options to expire worthless. Always confirm your plan’s post-termination exercise rules and expiration dates.
8) How do ESPPs get taxed?
ESPP taxation depends on plan structure and whether you meet specific holding period requirements. Some dispositions can be more favorable than others, but the details matter (discount, lookback, dates, and sale timing).
9) What’s the simplest “minimum viable” equity plan I can follow?
Keep a one-page tracker with: vest dates, expiration and post-termination deadlines, target % to keep in company stock, and a default sell rule (e.g., “sell 100% of RSUs at vest” or “sell down to 10% of net worth quarterly”). Then review quarterly and after major comp changes.
10) What should I bring to an advisor/CPA to model this correctly?
Bring your award agreements, vesting schedule, current share price/409A (private), strike prices, prior exercises/sales, tax returns (or at least your bracket), state residency history, and your near-term cash needs/goals. Good modeling depends on complete inputs.
CTA
If you want help mapping your vest schedule into a rules-based plan (tax modeling, diversification targets, and a calendar you can actually follow), book a Wealth Clarity Call:
Disclaimer
This content is for educational purposes only and is not tax, legal, or investment advice. Tax rules vary by state and change over time. Consult your CPA and other professional advisors regarding your specific situation.