Equity compensation
Grants arrive on someone else's schedule and stack up while you're busy earning them. A plan decides what each vest is for, how the taxes will land, and how much of your future should ride on one ticker.
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For a lot of high earners, salary pays the bills and equity builds the wealth. The grants pile up through refreshers and promotions until, almost by accident, one company's stock is the largest thing you own. Nobody planned that. It arrived one vesting date at a time.
Equity also gets taxed on its own schedule, not yours. Vesting dates and exercise windows create income whether or not the timing suits you, and the default settings, like standard withholding, are built for typical earners rather than for you. Left on autopilot, good grants can produce expensive surprises.
This page covers how I help you get ahead of that: understanding exactly what you hold, deciding how much of your future should depend on one company, and turning stock into the life the grants were supposed to buy.
Four kinds of equity pay show up most often. Each is taxed on its own trigger, and those triggers drive everything else in the plan.
Your company promises you shares on a vesting schedule. When they vest they're yours, and the IRS treats their full value as ordinary income that year, just like salary. No decision changes that tax. The decisions start the moment after vesting, when you're simply a person holding a lot of one stock.
Options with favorable treatment if you follow IRS holding rules: exercising triggers no regular tax, and shares held two years from grant and one from exercise are taxed as long-term capital gains when sold. The catch is the alternative minimum tax, which can reach the paper gain in the year you exercise.
The simpler option. When you exercise, the spread between your strike price and the market value is taxed as ordinary income right then, and anything after that is capital gain. Because the tax hits at a moment you choose, spreading exercises across years is where the planning lives.
Payroll deductions buy company shares, usually at a discount set by the plan. The discount is compensation, so expect ordinary income on it when you sell, with the exact treatment depending on how long you held the shares. A selling schedule keeps a nice perk from becoming another concentration problem.
The mechanics side by side. The last row is a default, not a rule: your bracket, cash needs, and appetite for concentration decide the final call.
| RSUs | ISOs | NSOs | |
|---|---|---|---|
| Taxed when | At vesting, automatically, whether or not you sell the shares. | No regular tax at exercise, though the spread can trigger the alternative minimum tax that year. Regular tax arrives when you sell. | At exercise, on the gap between your strike price and the market value. |
| Taxed as | Ordinary income on the full value at vest; growth after that is capital gain when you sell. | Long-term capital gain on the whole rise if you hold two years from grant and one from exercise, under IRS holding rules. | Ordinary income on the spread at exercise; later growth is capital gain. |
| A common mistake | Assuming default withholding covers the bill. For high earners it often runs short. | Exercising a large block without checking AMT exposure first. | Waiting until expiration forces a big exercise into a single tax year. |
| What usually helps | A standing decision about selling at vest, made once, in advance. | Modeling exercises across several years before acting, with AMT checked each time. | Spreading exercises deliberately across years instead of waiting for the deadline. |
On a schedule you set in advance, tied to what the money is for. Standing decisions beat grant-by-grant deliberation: sell this portion at vest, keep at most this much exposure, point the proceeds at named goals. Deciding once removes the pressure of getting each individual sale right.
If selling feels hard, that's normal. The stock built your net worth, selling can feel disloyal, and everyone knows someone who sold right before a run-up. The other story gets told less often: the colleague whose salary, bonus, options, and savings all depended on one company that stumbled. A schedule set while you're calm takes each sale out of the loyalty-versus-regret debate.
The broader market data makes the case on its own. In a landmark 2018 study, Do Stocks Outperform Treasury Bills?, Arizona State finance professor Hendrik Bessembinder tracked nearly 26,000 US stocks back to 1926 and found that the entire net gain of the stock market traced to just over 4 percent of companies. The other 96 percent, taken together, did no better than one-month Treasury bills, and more than half of individual stocks fell short of that same low bar over their lifetime. Owning the whole market captures those rare big winners automatically. Concentrating your future in one stock, even a strong employer, is a bet that yours turns out to be one of the few, and that data is a humbling place to make it.
By spreading them out on purpose. Vesting and exercise dates create income spikes, so we map grants against the years around them: exercising options in lower-income years, coordinating sales with bonuses and other income, and checking AMT exposure before any large ISO exercise. The goal is a smaller lifetime bill, not a clever trick.
Withholding is the first thing to check. Employers typically withhold RSU income at a flat supplemental rate that can sit below a high earner's actual bracket, which is how people who did everything right still owe a surprise at filing time. We estimate the true bill each year and set the difference aside on purpose.
As one input among many, not a separate project. Vesting schedules feed the savings plan, concentrated stock shapes how the rest of the portfolio is invested, and equity income changes the math on everything from insurance coverage to charitable giving. When the pieces move together, the stock serves the plan instead of dominating it.
In practice, your equity shows up in every other conversation we have. The emergency reserve is sized knowing a rough patch could hit your paycheck and your shares at the same time. Insurance is sized on your full compensation, not just salary. And giving can come from appreciated shares instead of cash; the Charitable Giving page shows how.
Jesse Plunkett, CEPA®, CRPC®
Financial advisor in Sanford, FL, serving clients across the country virtually. Meet your advisor, or check my record on 
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A quick, useful starting point
1. Named beneficiaries override your will Beneficiary listings on investment accounts override your will entirely. Named an ex-spouse or a late parent? They still inherit, no matter what your will says…
A short, low-key call. Bring nothing but a rough idea of what you've been granted, and we'll go from there.
RSUs are taxed when they vest. The full market value of the vested shares counts as ordinary income that year, the same as salary, whether you sell or not. Anything the shares gain after vesting is taxed separately as capital gain when you sell. The common surprise is withholding that runs below what a high earner actually owes.
There is no fixed percentage, because the risk depends on what else is true in your life. Your salary, your bonus, and your equity already rise and fall with the same company. The question I ask is what happens to your plans if the stock drops sharply and stays down. If the answer scares you, the position is too big.
Exercising ISOs and holding the shares creates no regular tax that year, but the gap between your exercise price and the market value can count as income under the alternative minimum tax, a parallel calculation the IRS runs alongside the regular one. A large exercise can trigger a surprising bill. Modeling it before you exercise is the whole game.
Selling at vest is a reasonable default, because holding vested RSUs is the same bet as buying your company's stock with a cash bonus. There's no extra tax penalty for selling right away; the income tax was owed at vesting either way. Whether you hold some is a concentration decision, and it deserves to be made on purpose.
Yes, and it's some of the most useful coordination we do. I model the planning side: which grants to sell or exercise, in which years, and how the income lands against everything else. Your CPA files the return and catches the reporting details, like adjusting cost basis so vested shares aren't taxed twice. You shouldn't have to referee between us.
Almost always. Everything is handled virtually, so where you live is rarely a barrier. The only exception is a handful of states where I'm not registered yet, and if that's you, I'll tell you on our first call.