Impact of Tax Relief Act on stock compensation and year-end planning

See http://bit.ly/hXdOgT on myStockOptions.com

The new Tax Relief Law of 2010 has an immediate impact in 2010 and extends the current tax rates through 2012.  myStockOptions.com sees at least eight key points related to equity compensation and year-end planning that are important, including the AMT income exemption amounts for 2010/11.

1. With the extension of the current tax rates, you will not need to give your immediate attention to all of the analysis about accelerating income into 2010 (e.g. exercising stock options, selling appreciated company stock, pro rata vesting of performance shares, or early cash bonuses) and delaying deductions into 2011. This will make these last two weeks of 2010 much less active for financial and tax decisions than they could have been. The insights and ideas in our year-end planning articles and FAQs on myStockOptions.com (http://www.mystockoptions.com/) remain useful to your thinking about these decisions.

If the uncertainty over rising tax rates in the long term concerns you (either the possible expiration of the tax-cut extension in 2013 or perhaps a serious effort at tax reform), then you will want to review our article series under Financial Planning: Advanced on the effect of tax rate increases on your strategies for NQSOs, restricted stock, and ISOs.

Concerns about the possibility of higher tax rates in the future are not unjustified given the global trend towards higher taxes to address budget deficits.  Many countries have increased taxes, particularly on stock compensation (See the Global Tax Guide on myStockOptions.com at http://www.mystockoptions.com/taxguide/ )

 2. The most meaningful new provision is the 2% cut in the Social Security tax rate, from 6.2% to 4.2% (Medicare remains uncapped at 1.45%). This reduces your Social Security tax maximum from $6,621.60 to $4,485.60, a savings of $2,136 ($4,272 for married couples). If you are not normally over the Social Security wage-base maximum ($106,800 in 2010 with no increase in 2011), then you may want to consider delaying any NQSOs exercises until 2011. This would reduce your taxes by 2% on exercise income up to the yearly cap. It does not appear that there will be income phaseouts for this 2% reduction in Social Security tax, as there are in the Making Work Pay Credit as it applies to Social Security taxes in 2010.

To read the other six points and more of our analysis see this link at:  

http://www.mystockoptions.com/faq/index.cfm/ObjectID/7C80AFC2-AA32-45AC-B95DC2B8EB7C4862

The full year end planning newsletter that covers other US and global tax developments is available at: 

 http://www.mystockoptions.com/resource/index.cfm/catid/6C90551C-583B-48DF-B0259B24D7B4C336/ObjectID/91D0E626-D377-44F0-830110DA1BE8D797