As part of your year-end and -beginning tax planning, don't forget
to review your restricted stock and company stock holdings. Below we
present five strategies that many experts suggest. Of course, you
should consult a financial advisor about your situation, as strategies
can vary according to your circumstances, on whether your decisions
should be entirely tax-driven, on what you did earlier in the year, on
your outlook for your company's stock price, and on the prospects for
changes in tax law during the year ahead. Unless you were already
definitely planning to sell company stock soon, most experts feel that
the likelihood of higher tax rates ahead should not be the only reason
for doing so at the end of 2009.
1. Your restricted stock vested this year
Unlike stock options, which trigger taxes when you choose to exercise
them, restricted stock usually gives you no control over the timing of
your taxes because you are taxed when the shares vest. (Two exceptions
to this tax treatment exist: opting to be taxed at grant instead by
making a Section 83(b) election, unavailable for restricted stock
units, or having a special type of restricted stock unit that defers
delivery of the shares.)
At vesting, you own the stock outright and have taxable W-2 income,
along with your other compensation income in 2009. Therefore, you can
try to plan the timing and shifting of other income around this
restricted stock income to avoid being pushed into a higher tax
bracket. For example, if you have nonqualified stock options (NQSOs),
you plan to exercise and hold, you might want to consider delaying this
until early 2010.
2. The stock price dropped after your restricted stock vesting this year
The tax treatment is fixed at the time restricted stock
(assuming no 83(b) election) or RSUs vest. This is the tax rule for
your federal and state income tax, regardless of the stock price later
in the year and whether you hold or sell the stock at vesting.
You may have planned to sell the stock at price targets after
holding it long enough to receive long-term capital gains treatment,
but the stock price fell. Therefore, you may want to consider selling
the stock to receive a short-term capital loss, perhaps to net the loss
against any capital gain from stocks you sold after the market turned
up, to diversify, or at least to put aside the funds to cover any
additional taxes that you expect to owe with your tax return.
Alert: When you're selling company stock at a loss to net against
gains, be careful about the wash sale rules if you intend to buy
company stock again soon. Wait at least 30 days.
3. Stock price rose after vesting
Alternatively, your stock price substantially increased in the market
upturn after March's lows, hitting your targets earlier than you
expected. Now you want to sell before the one-year mark because you are
concerned that your stock has peaked
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