Answer Box (TL;DR)
In this episode, Dan Pascone sits down with CPA Karl Strube to unpack one of the most confusing – and potentially costly – parts of a high earner’s financial life: equity compensation taxes. They walk through how RSUs, stock options, and ESPPs are actually taxed, why “set it and forget it” can quietly cost you five or six figures, and how to think about diversification versus tax efficiency so you’re not overexposed to the same company that pays your salary.
You’ll hear real-world examples of basis errors, missing tax forms, and overnight millionaires created by IPOs – plus what to do before those big moments so you’re not scrambling after the fact. If any part of your compensation comes in the form of company stock, this episode will help you turn complexity into a system and put equity to work for your long-term goals.
Key Takeaways
- Equity compensation is powerful, but complex. Stock options, RSUs, and ESPPs can become a major part of your net worth – and a major tax headache – if you don’t understand how they’re taxed and how they affect your overall risk profile.
- Concentration risk is real. Your paycheck already depends on your employer. When a big chunk of your net worth is also tied up in the same company’s stock, you’re doubling down on a single point of risk. Diversification isn’t about “hating” your company – it’s about protecting your life outside of it.
- RSUs are usually taxed as ordinary income at vest. When RSUs vest, the value typically hits your W-2 as wage income and shows up on a “zero-net” paystub. Selling immediately often has no additional tax consequences on that piece – which makes RSUs a prime candidate for diversification.
- Options (especially ISOs) add layers of complexity. Incentive stock options (ISOs) can trigger alternative minimum tax (AMT) based on the 409A valuation, while NQSOs create ordinary income at exercise. Tender offers, IPOs, and liquidity events magnify both the opportunity and the tax stakes.
- Good planning starts with the right documents. Forms 3921 (ISOs), 3922 (ESPP), stock plan supplements, W-2s, and detailed paystubs are all critical inputs. Missing basis adjustments or misreading broker 1099s are common ways people overpay (or underpay and get nasty surprises later).
- Taxes matter – but so does sleep. The “right” amount of company stock to hold is the level that lets you sleep at night. No tax strategy is worth it if you’re constantly stressed about a single stock dictating both your paycheck and your portfolio.
- Abundance beats scarcity. Karl’s approach – personally and professionally – is grounded in an abundance mindset: use money as a tool aligned with your values, your family, and the life you’re building, not just as a scorecard.
Key Moments
- [00:28] – Dan introduces Episode 34 and frames the discussion around equity compensation taxes for high-earning professionals.
- [01:15] – Karl shares his background: Deloitte audit, controller roles in agriculture, launching his own firm in 2017, and family life with three young kids in Fresno.
- [03:17] – How one early client with equity comp forced Karl to dig deep into Forms 3921/3922 and basis adjustments – and why that led him to specialize in equity compensation.
- [04:19] – Equity comp as a strategy sandbox: why timing exercises and sales can make five- or six-figure differences in lifetime tax bills.
- [05:26] – Dan and Karl discuss why equity comp is such a powerful tool for attracting and retaining talent – and why its complexity often overwhelms even very smart people (including doctors and executives).
- [06:59] – The big blind spots: concentration risk, liquidity, emotional attachment to company stock, and the “of course it will go up” mindset.
- [07:39] – Karl’s framework: measure net worth, compare cash vs. company stock, and ask: “Can you sleep at night with this level of exposure?”
- [09:22] – Dan lays out why having your income and a large chunk of your wealth tied to the same company is risky – and why diversification and tax efficiency can clash.
- [10:46] – Practical tools for diversifying: sell-to-cover on options, selling vested RSUs, and using the proceeds to build a broader portfolio aligned with your goals.
- [11:30] – RSUs 101: Karl explains how RSUs vest, hit your W-2 as income, and why selling immediately often doesn’t create extra ordinary income tax.
- [13:29] – 10b5-1 plans: Dan explains how preset trading plans can automate RSU sales, help diversify, and navigate blackout periods and insider trading concerns.
- [16:02] – Private company equity: ISOs, lack of liquidity, tender offers, and why private-company risk can be both higher and harder to manage.
- [17:16] – Watching for tender offers, understanding 409A valuations, and planning around AMT when exercising ISOs ahead of liquidity events.
- [17:59] – Real-world story: a client whose net worth jumped from low six figures to low seven figures overnight after an IPO – and the planning needed to manage the resulting tax bill and concentration.
- [20:00] – The three key document types Karl needs from clients: Forms 3921, 3922, and stock plan supplements to properly compute basis and avoid double taxation.
- [21:39] – Why paystubs matter: Karl shares a case where a relocation bonus was double-counted in a W-2 and would have cost a client ~$15K in unnecessary tax.
- [23:53] – Lightning round: coffee all day, favorite tech tool (Loom), abundance vs. scarcity mindset, reading to his kids, running marathons, and deferred gratification.
- [28:53] – Where to find Karl if you don’t want to DIY equity comp taxes: StrubeCPA.com and working with clients nationwide.
Episode Summary
Episode 34 of the Making Sense of Your Money podcast features CPA Karl Strube, whose practice focuses heavily on helping clients navigate the tax and planning complexities of equity compensation. Host Dan Pascone opens by noting that many high-achieving professionals now receive a meaningful portion of their pay in company stock, yet few understand how it’s taxed or how to manage concentration risk.
Karl shares his journey from Deloitte audit to corporate controller roles to launching his own firm in 2017. Early on he was a generalist, working with anyone who needed a tax return. That changed when he landed a client with equity compensation from a public company. Forms 3921 and 3922, stock option supplements, and basis adjustments forced him to dive deep. He realized two things: one, there was tremendous room to add value with careful planning; and two, there was a lot of bad information floating around online about taxes.
The conversation then zooms out to what equity compensation actually is: companies paying employees with stock as a tool to recruit, retain, and align incentives. Dan and Karl both like the concept in theory – especially for motivated, impact-driven professionals – but agree that in practice it creates complexity and risk. Your paycheck depends on your employer; when your net worth also leans heavily on the same stock, you’re doubling down on a single point of failure.
Karl’s planning framework starts with a simple but powerful exercise: lay out your net worth and calculate how much is in cash vs. how much is in company equity (including unexercised options and unvested equity). Then ask an emotional question: can you sleep at night with this level of exposure? The “right” percentage is the one that lets you rest, not the one that maximizes theoretical upside at the cost of constant anxiety.
From there, they get tactical. On the public company side, RSUs are often the easiest place to start diversifying. Karl explains that when RSUs vest, their fair market value shows up on your W-2 as wage income via a separate “bonus-like” paystub that nets to zero – the tax withholding happens right then. Because of that, selling immediately usually doesn’t create extra ordinary income tax on that portion of the value; further gains or losses after vest are capital gains or losses. That makes RSUs an obvious source of cash to redeploy into a broader portfolio, real estate, retirement accounts, or other goals.
Dan adds the importance of 10b5-1 plans for public-company insiders, especially executives subject to blackout windows and insider trading policies. By adopting a preset trading plan when not in possession of material nonpublic information, they can automate RSU sales on a schedule, diversify systematically, and avoid the appearance of trading on inside information – even if the actual sales occur during blackout periods.
On the private company side, things get trickier. ISOs are more common, liquidity is limited, and tender offers become crucial liquidity events. Karl emphasizes the need to track both 409A valuations (important for AMT when exercising ISOs) and tender offer prices (the actual sale value). He shares an example of a client whose privately held company went public, vaulting him from low six-figure net worth to low seven figures overnight after exercising NQSOs prior to the IPO. Great outcome – but also a major tax event that required careful planning to manage cash needs for taxes and diversification.
A recurring theme is documentation. Karl stresses that good planning and accurate returns require the right forms: 3921s (for ISOs), 3922s (for ESPP shares), and stock plan supplement documents that show how much income has already been recognized in connection with sales. These often live partly in employee portals and partly in brokerage portals, not always in the obvious “tax documents” folder. He encourages clients to be curious and proactive in tracking them down.
He also requests year-end paystubs, not just W-2s, because mistakes happen. In one case, a client’s relocation bonus was double-counted in the W-2, which would have cost an extra ~$15,000 in tax if they hadn’t caught it by reconciling against the paystub. Karl uses IRS transcript access (with client authorization) as a backstop, but emphasizes that it’s not a complete substitute for good document hygiene.
The episode closes with a lighter lightning round where Karl shares his love of coffee, Loom as a key async communication tool for his remote, family-first firm, and his “abundance, not scarcity” philosophy that guides his work and investing. He talks about reading to his kids, running marathons in Fresno, and the power of deferred gratification in building a life you’re proud of. For anyone juggling equity compensation, taxes, and life goals, the message is clear: get organized, get help when you need it, and use your equity as a tool to serve your version of a rich life – not the other way around.
Transcript
Lightly edited for clarity and brevity.
Dan: Brought to you by Tailored Wealth, helping business leaders live their version of a rich life.
Dan: Welcome to another edition of the Making Sense of Your Money podcast, where we cut through the financial noise and help business leaders make smart, confident money decisions.
Dan: Welcome to episode number 34. I’m your host, Dan Pascone, founder and CEO of Tailored Wealth. Each episode features a trusted voice in the financial world to help high achievers confidently make sense of their money.
Dan: Today I’m excited to have with us Karl Strube, owner of Strube CPA. Karl has a unique expertise – taxation of equity compensation – which is a big topic for many of our clients and listeners. Karl, thanks for being here.
Karl: Thanks for having me, Dan. Looking forward to the conversation.
Dan: Give us a quick overview of who you are, what you do, and how you got into this field.
Karl: Personally, I’m married to my wife Heidi. We have three kids – Nora, almost eight; William, five; and Gloria, about a year and a half. We live in Fresno, California. I grew up in Orange County, came to Fresno for college, and ended up staying.
Karl: Professionally, I graduated with an accounting degree and started my career at Deloitte in their audit practice for about five years. Then I moved into private industry as a controller for a couple of agriculture companies for another five or so years. While I was at that second controller job, I started doing taxes on the side.
Karl: Life changes eventually led me to leave that role in 2017 and grow my own firm. When I started, I was a generalist – anyone who was breathing and willing to pay got help. Over the last few years, I’ve specialized more in equity compensation: stock options, RSUs, ESPPs. That’s where I saw the biggest need and where I enjoyed the work most.
Karl: There’s a lot of strategy in the equity comp space. The tax code gives us legal discretion in how we plan – especially around timing. And there are tricky nuances, like basis adjustments, that are very easy to overlook. By focusing on this niche, I can help clients avoid costly mistakes, not overpay taxes, and maximize the value of their equity.
Dan: Love it. Let’s talk about how you landed in this specialization. You started as a generalist – what pulled you into equity comp specifically?
Karl: It really started with one client in my second year of running the firm. They worked for a public company and had equity comp. I saw Forms 3921 and 3922 for the first time and realized there was more going on than just punching numbers into tax software.
Karl: I wanted to get it right, so I started buying books, taking continuing ed courses, and digging into specialized resources. I also saw a lot of bad advice online, so I knew I needed to be careful and precise.
Karl: I found that much of the real work happens before you ever touch the software: building Excel models, doing VLOOKUPs and SUMIFs, and reconciling what the broker reports versus what’s actually taxable. That naturally evolved into more proactive tax planning – helping clients decide when to exercise, when to sell, and how those decisions affect their lifetime tax bill and wealth building.
Dan: I love equity comp as a concept. Companies use stock to attract and retain talent and to align incentives. But the downside is the complexity. Most people don’t have deep tax or financial planning expertise, and I’ve seen incredibly smart people struggle with this.
Dan: From your side, what are the biggest challenges clients bring you when it comes to equity compensation?
Karl: I’d group them into three buckets. First, they underestimate the complexity and the need for strategy. Second, they don’t always appreciate liquidity constraints – especially at private companies. Third, they don’t fully grasp concentration risk.
Karl: On that last point, I spend a lot of time looking at net worth: what percentage is in cash or diversified investments, and what percentage is current and potential value in company stock? Then we have an honest conversation: how much of your wealth are you comfortable tying to the same place your paycheck comes from?
Karl: Everyone believes their stock will go up – “We’re doing great; why wouldn’t it?” My job is to gently challenge that and help them see the risk of having income and wealth both tied to one company. I’m not trying to be doomsday; I just don’t want them decimated if things don’t go as planned.
Dan: That’s huge. I always tell clients: you’re already “long” your company through your paycheck. If a big chunk of your net worth is also in those shares, that’s a lot of eggs in one basket.
Dan: But then we hit this tension: we want to diversify away from the company, but we also want to be tax efficient. Those goals don’t always line up. How do you help clients think about that tradeoff?
Karl: First, we quantify it and then we bring it back to sleep and peace of mind. The right percentage of company stock is the one that lets you sleep at night. No amount of wealth is worth constantly being on edge.
Karl: Once we know their comfort range, we look at scenarios. One strategy is “sell to cover” on option exercises, where you sell enough shares right away to cover the exercise cost and taxes, instead of holding all of them. Another is focusing on RSUs, which are usually easier to sell quickly. Then we look at what to do with the freed-up cash: taxable investing, retirement accounts, paying down debt, real estate – whatever lines up with their goals.
Dan: Let’s drill into RSUs because there’s a lot of confusion there. Say we have a public-company executive receiving RSUs. How are those taxed at vest, and what happens if they sell right away versus holding?
Karl: Great question. When RSUs vest, their fair market value is treated as wage income. You’ll usually see a separate “bonus-like” paystub on that pay date. Your employer withholds tax, and the net pay on that stub is often zero because the shares are delivered to your brokerage instead of cash.
Karl: That value goes straight onto your W-2 as ordinary income. There’s no additional ordinary income tax triggered by selling at vest – you’ve already recognized the income. From that point on, any movement in the stock price is capital gain or loss.
Karl: So if you sell immediately at or near the vest price, there’s typically very little capital gain or loss, and the main tax event has already happened. That’s why I often encourage clients to think of vested RSUs as a prime source of liquidity for diversification. You’re not avoiding future tax by holding; you’re just taking on more stock-specific risk.
Dan: We like pairing that with 10b5-1 plans. For public-company insiders – especially those subject to blackout periods – a 10b5-1 plan lets you pre-set a schedule for selling shares when you don’t have material non-public information. Then, even if the actual sales happen during a blackout, you’re protected because the plan was adopted in advance.
Karl: I think that’s brilliant. You never know what might happen between a vest date and the next open trading window – a big beat, a miss, a market shock. The stock price could be very different by the time you’re allowed to sell. A 10b5-1 plan lets you show you’re not trading based on inside information; you’re just trying to responsibly diversify.
Dan: How about private companies – more ISOs, less liquidity, sometimes tender offers. How do you approach those situations?
Karl: There’s definitely more nuance. Clients at private companies can’t just click “sell” any time. They need a buyer – often through tender offers or, eventually, an IPO or acquisition.
Karl: With ISOs, you have to track 409A valuations because those matter for AMT when you exercise. Then you have to watch for tender offers, where the company or investors buy back shares at a specific price – that’s your liquidity event.
Karl: We’re constantly watching equity concentration and scenario planning. Some argue private equity is even riskier because it’s less transparent and less liquid; others see it as a bigger upside opportunity. Either way, it’s a tool. Our job is to help clients use that tool in a way that serves their goals, not just gamble.
Karl: I had one client whose company went public. He had exercised NQSOs before the IPO. When the stock hit the market, his net worth jumped from low six figures to low seven figures overnight. That’s exciting – but it also came with a big tax bill and a huge concentration risk question we had to navigate.
Dan: You’re the tax expert doing the modeling, but clients need to bring you good data. What are the core decisions and documents they need to have ready so you can do your best work?
Karl: Step one is access and organization. They need to be able to log into their employee portal and brokerage accounts and actually find the relevant forms.
Karl: Three big ones: Form 3921 for ISO exercises, Form 3922 for ESPP shares, and the stock plan supplement that accompanies the 1099 for any share sales. That supplement is critical for basis adjustments; it shows what income has already been included in wages.
Karl: I also ask for their year-end paystub in addition to the W-2. I estimate roughly 1% of W-2s I see have some sort of error. The paystub helps us prove or disprove the W-2 numbers. One of the most extreme examples was a client whose relocation bonus was double-counted in the W-2. It would have cost about $15,000 in extra tax if we hadn’t caught it.
Karl: On the brokerage side, I tell clients not to just check the “tax documents” tab and stop there. Sometimes the stock plan supplement and other equity-related docs are in separate sections. I can’t log in for them, so I need them to be curious and thorough. I also use an IRS information authorization to view their IRS transcripts, which provides a safety net, but that’s not instantaneous and doesn’t replace their own document gathering.
Dan: Great advice. The sooner clients get those documents to their advisors, the more we can help. All right, Karl, we’re going to shift gears into the lightning round. First thought that comes to mind – ready?
Karl: Let’s go.
Dan: Coffee or tea?
Karl: Coffee. All day, every day.
Dan: One meal for the rest of your life?
Karl: That’s tough because I love variety and my wife is an amazing cook. But a childhood favorite is stuffed shells – ricotta cheese in pasta. That has a warm spot in my heart.
Dan: One tool or piece of technology, other than your phone or computer, you can’t live without?
Karl: Professionally, Loom. It’s a video recording tool. I use it to make walkthrough videos for clients, my admin makes videos for me – it’s our async communication backbone. We don’t have fixed work hours, we both have young kids, and Loom lets us collaborate without always needing meetings.
Dan: Favorite quote or phrase about money or success?
Karl: “Abundance, not scarcity.” That mindset has driven my career, my investing, and how I treat clients. It changes how you show up in business and life.
Dan: Any personal hacks you can share?
Karl: On the personal side: if I want to get things done around the house, I put my shoes on and don’t sit down. With young kids, if I sit down, I’m done. So I stay on my feet and knock out the list.
Karl: Another one: read to your kids. I read a lot to mine. Those snuggle-and-story moments are something I know I’ll treasure forever.
Dan: Favorite book on finance or business?
Karl: One that had a big impact on me is Values-Based Financial Planning. I read it when I was in seminary – I have a seminary degree in addition to accounting – and it helped my wife and me clarify our “why” around money as we were getting engaged and married. It walks you through identifying and ordering your financial goals and making sure your money supports your values.
Dan: What’s one bucket-list item you’ve already accomplished?
Karl: Running a marathon. I’ve done two, both here in Fresno.
Dan: And one milestone you’re still working toward?
Karl: Continuing to lean into deferred gratification – building the firm and life we want over time rather than chasing quick wins.
Dan: If you could give one piece of advice to your younger self, what would it be?
Karl: Again, deferred gratification. I tried to live that way, but I’d double down on it. It’s been a big part of why I’m where I am today.
Dan: Love it. Karl, if listeners want to connect, collaborate, or work with you, where should they go?
Karl: Best place is my website: StrubeCPA.com – that’s S-T-R-U-B-E-C-P-A dot com. I work with clients all over the country, so if you don’t want to DIY your stock options and equity comp taxes, I’m happy to be a resource.
Dan: Fantastic. Karl, thanks so much for joining us – really enjoyed the conversation.
Karl: Thank you, Dan.
Dan: That’s it for the episode. As always, you can find our podcast along with our newsletter and YouTube channel – all for free – at makingsenseofyourmoney.com. And as always, prioritize your version of a rich life.
Frequently Asked Questions
What types of equity compensation does this episode focus on?
The conversation primarily covers Restricted Stock Units (RSUs), stock options (both Incentive Stock Options, or ISOs, and Non-Qualified Stock Options, or NQSOs), and Employee Stock Purchase Plans (ESPPs). It also touches on how these differ between public and private companies, where liquidity, tender offers, and IPOs play a bigger role.
How are RSUs typically taxed?
RSUs are generally taxed as ordinary income when they vest. On the vest date, the fair market value of the shares is added to your wages and appears on your W-2. Employers usually withhold tax via a separate “bonus-like” paystub that nets to zero. After that, any change in share price between vest and sale is taxed as capital gain or loss. Selling immediately after vest often creates little to no additional ordinary income tax.
What is concentration risk and why should I care?
Concentration risk is the risk of having too much of your wealth tied to a single asset – in this case, your employer’s stock. Because your paycheck already depends on your employer, holding a large portion of your net worth in the same stock doubles your exposure. If the company runs into trouble, you could lose your job and experience a portfolio hit at the same time. Managing concentration risk is about protecting your broader financial life, not about being disloyal to your employer.
What key documents should I gather for my CPA or financial planner?
For equity compensation, Karl highlights three categories:
– Form 3921 for ISO exercises
– Form 3922 for ESPP purchases
– Stock plan supplement documents that show basis and income already recognized in connection with stock sales
In addition, you should provide your W-2, year-end paystub, and all relevant 1099s from your brokerage. These documents often come from both your employee portal and your brokerage portal, and may not all sit under the “tax documents” tab.
How can I diversify my equity compensation in a tax-aware way?
Common tools include selling RSUs soon after vesting, using “sell-to-cover” on option exercises to avoid large cash outlays, and spreading sales across multiple tax years when appropriate. For public-company insiders, 10b5-1 trading plans can automate sales and help navigate blackout windows. The right approach depends on your tax bracket, time horizon, concentration level, and overall financial plan, so it’s important to model scenarios with a qualified professional.
Should I try to manage equity comp taxes on my own?
It depends on your comfort level and complexity. Simple scenarios can sometimes be handled with careful self-education. But as your equity grows, you accumulate multiple grants, or you face private-company events (tender offers, IPOs, ISOs and AMT), the complexity and stakes increase quickly. At that point, working with a CPA and financial planner who understand equity compensation can help you avoid costly mistakes and align decisions with your long-term goals.
Disclaimer
The information in this episode and on this page is for educational and informational purposes only and does not constitute, and should not be relied upon as, individualized tax, legal, or investment advice. Equity compensation, tax rules, and securities regulations are complex and subject to change. The examples discussed are illustrative and simplified for discussion purposes.
Your personal situation, employer plans, and jurisdiction-specific rules may lead to very different outcomes. Before taking any action related to stock options, RSUs, ESPPs, 10b5-1 plans, or other equity strategies, you should consult with qualified professionals who can review your full financial, tax, and legal picture.