Equity is not a windfall. It's a planning opportunity — with a narrow window.
Incentive stock options (ISOs), non-qualified stock options (NSOs), and restricted stock units (RSUs) each carry distinct tax treatment, exercise mechanics, and strategic considerations. An ISO exercised at the wrong time can trigger a six-figure alternative minimum tax (AMT) liability even before the underlying shares can be sold. An 83(b) election missed by 30 days can cost a founder millions in ordinary income tax on appreciation that should have been taxed at capital gains rates. These are not hypothetical risks — they are the common mistakes that happen when equity planning is reactive rather than proactive.
We build a comprehensive equity audit at the start of every engagement — cataloguing every grant, vesting schedule, exercise window, and tax election deadline. From that foundation, we model the tax consequences of alternative strategies across a range of exit scenarios: different exercise timing for ISOs, spread of RSU sales across income brackets, and early exercise elections timed to maximize QSBS (Qualified Small Business Stock) exclusion eligibility under IRC Section 1202.
The QSBS exclusion is among the most valuable provisions in the tax code for startup employees and founders — up to 100% federal exclusion on gains from qualifying stock, on up to $10 million per taxpayer (or 10x the adjusted basis, whichever is greater). Qualification requires holding the shares for more than five years from the date of acquisition, among other conditions. The planning window to establish that holding period often opens — and closes — in the earliest days after a grant. We ensure clients understand and act on this opportunity before it passes.
For executives with large, concentrated positions post-IPO, the challenge shifts to systematic diversification. We design selling programs that balance tax efficiency (managing brackets, harvesting losses, timing long-term gains) against concentration risk — and coordinate with your legal team on Rule 10b5-1 plan requirements during trading restrictions.
