Equity compensation can be one of the biggest wealth builders of your career. But it can also come with a big problem: taxes.
If you have stock options, RSUs, or equity grants, you might already know how quickly they can become a major part of your portfolio. Maybe you want to sell shares to buy a home, pay for college, or diversify away from your company’s stock.
The challenge? Doing all that without ending up with a massive tax bill.
Here are 8 smart tax strategies that can help you maximize your equity and minimize your taxes.
1. Make an 83(b) Election
If you are granted restricted stock, filing an 83(b) election within 30 days lets you pay tax now, when the stock is cheap, instead of later when it is worth far more. Future growth may qualify for long-term capital gains treatment, which is often taxed at lower rates.
Learn more from the IRS 83(b) election rules.
Check If Your Stock Qualifies for QSBS
Some startup shares qualify as Qualified Small Business Stock (QSBS) under Section 1202. If you hold QSBS for five years, you may be able to exclude up to $10 million of gains from taxes.
This rule applies only to C-corps under $50M in assets at issuance, but when it works, it is a game-changer.
Gift Appreciated Stock to Your Kids
Instead of selling appreciated stock and paying taxes, consider gifting shares to your children. If they are in a lower tax bracket, they could sell the stock and pay less in capital gains tax. Be mindful of kiddie tax rules, which may apply to younger dependents.
Avoid Double Taxation on RSUs
When RSUs vest, you pay ordinary income tax on their value. But if your cost basis is not tracked correctly, the IRS might treat the entire sale as a gain. Double-check your brokerage and Schedule D to avoid paying twice on the same income.
Donate Appreciated Stock to Charity
Instead of writing a check, donate stock directly to a qualified 501(c)(3). You avoid capital gains tax and still get a charitable deduction for the full value. Tools like Charity Navigator can help you vet organizations.
Use an Exchange Fund
If your portfolio is heavily concentrated in one company’s stock, an exchange fund lets you swap your shares for a diversified portfolio without triggering taxes upfront. These funds usually require accredited investor status and minimum investments.
Harvest Tax Losses
Selling investments at a loss to offset gains—called tax loss harvesting—can reduce your overall tax bill. Just avoid rebuying the same stock within 30 days to sidestep the wash sale rule.
Look at the Bigger Picture
Equity taxes do not exist in isolation. Losses from a spouse’s rental property, a side business, or other ventures may offset equity gains. The IRS looks at your full financial picture—and so should your tax strategy.
Final Thoughts
Equity compensation can build wealth, but poor planning can turn it into an expensive tax problem. These strategies work best when combined.
By making early elections, checking for QSBS, donating or gifting shares, and coordinating with the rest of your financial life, you can save thousands and keep more of what you’ve earned.
If you are ready to explore how equity compensation fits into your broader tax strategy, schedule a consultation with Bement Company.