How Equity Compensation Events Impact Your Taxes
Learn how different equity compensation events—RSU vesting, NSO exercises, ISO exercises, and stock sales—trigger tax calculations in Grantd.
Understanding Equity Compensation Tax Events
Equity compensation is the primary driver of tax complexity for your clients. Here's how different events flow through the Grantd platform:
RSU (Restricted Stock Unit) Vesting
When It Vests
Added to ordinary income at Fair Market Value
Example: 1,000 shares × $30 = +$30,000 income
Tax Withholding
Awardholders are subject to tax withholding based on these figures when shares are released. Supplemental tax rates are applied to income figures.
Common Issue
Clients may be under-withheld, creating a tax bill at filing
Capital Gain/Loss
Occurs when shares are subsequently sold
NSO (Non-Qualified Stock Option) Exercise
Taxable Event
When exercised (not when granted or sold)
Ordinary Income
Spread = Fair Market Value - Exercise Price
Displayed
When modeling in Strategies tab
Withholding
May require additional withholding or estimated tax payments
Capital Gain/Loss
Occurs when shares are subsequently sold
ISO (Incentive Stock Option) Exercise
Regular Tax
No immediate tax impact when exercised but purchases of ISOs generate "Phantom Income" also known as AMT preference
AMT Impact
Spread (FMV - Exercise Price) is an AMT preference item
Displayed
Both regular tax and AMT calculations shown side-by-side
Planning Opportunity
Can trigger significant AMT in exercise year but may generate AMT credits for future years
Strategy
Understanding unique tax rules that apply to ISOs relating to qualifying and disqualifying dispositions when shares are subsequently sold
Stock Sales
Capital Gains Treatment
- Short-term: Held less than 1 year
- Long-term: Held more than 1 year
Wash Sale Rules
Applied when relevant
Capital Loss Limitations
$3,000 annual limit; excess carried forward
How These Events Appear in Your 5-Year Projection
Each equity compensation event flows through the tax calculation steps:
- Income Recognition: Event adds to total income in the year it occurs
- Tax Calculation: Income is taxed according to its type (ordinary vs. capital gains)
- AMT Check: Platform checks if event triggers AMT (especially for ISOs)
- Total Liability: Updated tax liability reflects the event
- Multi-Year Impact: Future years may show effects (e.g., AMT credits, higher basis for capital gains)