Embrace the Challenge: Your 2023 Year-End Equity Compensation Checklist

Embrace the Challenge: Your 2023 Year-End Equity Compensation Checklist

November 29, 2023

Navigating year-end financial planning for your stock compensation can be quite a challenge, particularly when set against the backdrop of ongoing market turbulence. The past two years have seen headlines dominated by concerns over inflation, interest rates, and the roller-coaster ride of the stock market. The pressing question on everyone's mind is whether this will change for the better in 2024. It's a question without a clear answer, yet we understand that markets, in their efficiency, tend to find their balance over time, ultimately leading to recovery.

Given the uncertainty, let's explore the crucial aspects you should consider in your year-end equity compensation strategy:


  1. Prioritize Your Goals: Instead of letting taxes dictate your actions, make your financial goals the cornerstone of your decision-making process. Consider whether you'll need to allocate company stock toward a financial goal in 2024, especially if you anticipate higher income due to substantial Restricted Stock Unit (RSU) vesting. If the answer is yes, consider exercising options in 2023 to shift income to the current year.


  1. Create a Multi-Year Strategy: You may want to consider optimizing your various equity grants with a multi-year strategy that helps mitigate higher taxes and helps enhance the long-term value of your equity. Review vesting schedules for RSUs, restricted stock, and stock options, and assess the likelihood of substantial performance share vesting in 2024 based on your performance targets.


  1. Leverage Tax-Loss Harvesting: In a bear market, consider selling company stock at a loss and repurchasing it after 30 days to avoid the wash sale rule. Recognizing capital losses in 2023 can yield benefits in future years, potentially reducing your tax liability on capital gains.


  1. Prepare for Job Changes: If you're expecting a job change at the beginning of the year, conduct a pre-year-end review. Determine which grants will vest before your departure and be ready to exercise options after leaving the company if necessary. Estimating your 2024 income might lead you to accelerate income by exercising non-qualified stock options or selling low-cost basis company stock in 2023.


  1. Embrace Charitable Giving: Consider donating company stock instead of cash, especially if you own highly appreciated stock. Donating stock to a charity grants you a tax deduction for the full market value while allowing you to support a cause close to your heart.


  1. Consider ISO Planning: Incentive stock options (ISOs) offer unique tax treatment. To enjoy preferential treatment, you must hold the stock for two years from the grant date and one year from the exercise date. Careful planning is key. Here are a couple of ideas to consider:
  • Exercising ISOs at the start of the year can kickstart the holding period for long-term capital gain treatment. Consider selling the stock before year-end to eliminate your AMT liability, especially if your company's stock price has dipped. This is called a disqualifying disposition, and you will pay ordinary income taxes instead.


  • In the current volatile market, you may have an opportunity to exercise more ISOs without triggering the AMT.


  1. Seek Professional Guidance: Navigating the intricate world of equity compensation tax implications and strategies is no easy task. Always consult a tax accountant and financial advisor to devise the best strategy tailored to your unique situation.


The year 2023 may hold its challenges, but with the right strategy and guidance, you can steer your equity compensation toward success in the year ahead.