Executive Tax Consulting Services

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Executive tax planning involves understanding the economic, risk, and opportunity characteristics of alternative courses of action. Income tax rates, amounts, and timing can vary drastically depending on choices made. The role of the executive tax consultant is to illustrate the potential tax results and place them into perspective as important components of the final decisions.

Generally, any economic benefit that an executive receives from his or her employer is taxed as salary subject to ordinary income taxes and payroll taxes. Tax strategies include deferring income to later years, converting income from ordinary to capital gains, and avoiding payroll taxes.

If the executive sells the stock after more than 12 months, the gain is a long-term capital gain and not subject to payroll taxes. A special rule exempts this additional salary income from Social Security, Medicare, and federal income tax withholding. If the stock is sold by options trading classes san diego executive 12 months or less after exercise, the bargain element is treated as salary income subject to ordinary, not capital gains, income tax rates. Any additional gain is short-term capital gain, which is also taxed at ordinary income tax rates.

A special rule exempts this salary income from Social Security, Medicare, and federal income tax withholding. The key time frame is how long the stock is held after options are exercised to purchase the stock. Even in same day sales the price can differ slightly from the time of exercise options trading classes san diego the time of sale and result in a small capital gain or loss.

If the stock is received subject to restrictions, a Section 83 b election can be made to save taxes on future appreciation see below. Restricted stock functions similarly to Non-Qualified Stock Options. When stock is transferred to an executive subject to restrictions, there is no taxable options trading classes san diego to the executive until the restrictions lapse. At that point, the difference between the amount the executive paid and the Fair Market Options trading classes san diego FMV is taxed as ordinary salary subject to income tax withholding and payroll taxes.

Although this results in paying tax earlier than would otherwise occur, further appreciation would then options trading classes san diego capital gains income not subject to payroll taxes. An executive compensation plan that allows executives to choose to have a portion of their salary put into a special trust is often referred to as a Rabbi Trust.

The executive does not pay tax on the income until it is paid out of the trust to the executive in a future year.

Combined with qualitative factors, this allows the executive to make well-informed decisions to save taxes and maximize long-term wealth. I am a fee-only professional compensated on an hourly or project-fee basis. I maintain options trading classes san diego independence and objectivity by refusing to sell insurance, annuities, mutual funds, or software — I do not earn commissions. Executive Tax Consulting Services Executive tax planning involves understanding the economic, risk, and opportunity characteristics of alternative courses of action.

Unfortunately, in the year of exercise the Bargain Element is taxable income for AMT unless the stock is options trading classes san diego that same year. However, this AMT income is reversed in the year the stock is eventually sold, typically resulting in a refund or credit of AMT previously paid.

AMT is primarily an issue when the options are exercised in one year and the stock is sold in a subsequent year.

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