FAQ
What’s the real difference between ISOs and NSOs for executives?
ISOs (incentive stock options) are generally available only to employees and can receive favorable long-term capital gains treatment if you hold the shares at least one year after exercise and two years after the grant date. They can, however, trigger AMT if exercised in large amounts without planning. NSOs (non-qualified stock options) are more flexible, companies can grant them to employees, board members, and contractors, but the spread at exercise is typically taxed as ordinary income, often with payroll tax. For both, any additional gain after exercise may be taxed at capital gains rates if you hold long enough.
Why do RSUs feel so simple but create surprise tax bills?
RSUs are mechanically simple: you receive actual shares when they vest, and the fair market value at vesting is treated as ordinary income. The catch is that your tax bill is based on the value at vest, even if the stock price falls afterward. That’s why many executives choose a same-day sale or at least sell a portion at vest to cover taxes and reduce downside risk, especially in volatile sectors.
How much of my net worth is “too much” in company stock?
There’s no perfect number for everyone, but many planners start raising red flags when your employer’s stock climbs above roughly 10–20% of your investable assets. Above that range, a single negative event, a bad earnings report, regulatory issue, or leadership change, can have an outsized impact on your total wealth. A common approach is to set a target cap, then use future vesting and exercises as opportunities to regularly trim and diversify.
What is an 83(b) election and when might it make sense?
An 83(b) election applies when you receive stock that is subject to vesting (often via early-exercised options or restricted stock). By filing an 83(b), you elect to pay tax now on the current fair market value instead of at vesting, starting your long-term capital gains clock earlier. This can be powerful if the stock is low-value and you’re confident in the company’s trajectory. But if the stock falls or never appreciates, you may prepay tax on value you never fully realize, so you should only file after careful analysis with a tax professional.
I’m joining a new company, what should I ask about the equity package?
At minimum, ask about the type of equity (ISOs, NSOs, RSUs, performance shares, ESPP), the vesting schedule and cliffs, post-termination exercise windows, whether early exercise and 83(b) are available, and how often new grants are considered. It’s also smart to ask how the company has historically handled liquidity events (IPOs, tender offers, secondary sales) and what education they provide around taxes and planning so you aren’t left to figure it out alone.
Do I really need an advisor just for my equity compensation?
You might, depending on the size and complexity of your grants. Once the value of your equity crosses into six- or seven-figure territory, or represents a large chunk of your net worth, the stakes of getting AMT, withholding, timing, or diversification wrong can be high. A good advisor doesn’t just explain the forms; they help you integrate equity with cash flow, taxes, retirement, and goals so each vesting or exercise decision moves you closer to your version of a rich life.