Tech employees can make great money, but they also get hit with one of the worst taxes imaginable. It is not AMT, State income tax, or anything to do with Capital Gains.
We call it the 'Double Tax' on Stock Compensation. For new clients, this is one of our favorite wins to get right off the bat. We've amended too many tax returns that were hit by the 'Double Tax'.
Have you ever heard someone say this? “I feel like all of my money is going to taxes.” Well, in some cases they are right.
If you are maxing out your regular 401(k) deferrals, making annual “backdoor” Roth IRA contributions, and still have additional funds to be put away for retirement, then making after-tax “mega backdoor” Roth 401(k) deferrals could be your next savings step. Those contributions can be incredibly impactful in helping you arrive at retirement with a large tax-free account.
In a perfect world you would arrive at retirement with both pre-tax (such as traditional 401(k)s and IRAs) and post-tax (Roth 401(k)s and Roth IRAs) retirement accounts to allow for tax bracket optimization and wider tax planning opportunities. Let’s take a look at the difference between traditional and Roth IRAs, and see how you can contribute to a Roth IRA even when you are over the income limits.
A higher starting salary can lead to thousands (or millions) more dollars over the course of a career. Meanwhile, salary negotiation is often approached without the intention and thought it deserves.
In this piece, we take a deep dive into the art of compensation negotiation. We’ve drawn on research and feedback from recruiters, hiring managers, and employees.
Estate planning is setting up a framework for directing your affairs and assets after you have either become incapacitated or passed away. You are trying to ensure that:
Your wishes are honored (assets, healthcare decisions, legacy)
Your children/dependents are cared for by designated people
Your estate avoids the probate process to preserve privacy and minimize legal fees
Estate taxes (if any) are minimized.
If you could buy something at a discount and immediately sell it for the full price without much effort, would you do it? Participation in an ESPP could end up working out just like that. But as with all tax-related and benefit-related things, the devil is in the details. We are going to go through ESPP timelines, limits on salary deferrals and buying, and tax rules for dispositions of ESPP shares.
If you sell an asset at a loss, you might be entitled to either claim the loss as a deduction or use it to offset eligible gains. However, the wash sale rule sometimes comes into play, and it can be particularly pesky for those with multiple types of equity compensation from the same company (say, when you have those pre-IPO ISOs, there are RSUs vesting, and you also participate in the ESPP).
With California’s tax rate topping out at 13.3%, many residents are asking questions like this: How can I minimize my California tax hit when my company IPOs or I have a large windfall? Or this: If I leave California with all of my stock options, do I avoid paying California taxes?
Here is an extensive guide on the topic of California taxation of your equity.
When it comes to public companies, many employees have RSUs (company stock) as a piece of their compensation that vest either monthly, quarterly, or annually. The “by the book advice” is to sell the shares ASAP and deploy the funds elsewhere (diversify). We hear this all the time, but we’ve yet to meet someone that does exactly that.
AMT (“Alternative Minimum Tax”) is one area of the tax code that a start-up employee knows a lot more about than your average taxpayer, since incentive stock options are a common AMT trigger. Though many know about AMT, or at least have heard of it, few truly understand its mechanics due to the many moving parts in the analysis. We will address AMT calculations and credits, and explain why AMT isn’t as bad as it is commonly made out to be.
