Stock Option Tax Surprises and How to Avoid Them

As we near the April 18th filing deadline, some of our tax clients are in for a surprise. Not an April Fools’ surprise, mind you. But not a fun surprise, nonetheless…stock option tax surprises!

Every year my team passes along stories of clients that were surprised (shocked!) at the balance due on their tax returns. 

Turns out there is an easy solution to prevent shocking balances due…

“Talk to your tax professional”  (well before April 18th)!

The Importance of Tax Planning

In nearly all circumstances, these surprise balance due amounts could have been estimated, planned for and discussed well in advance of the April due date.

Our firm offers additional tax planning and tax projection services to clients as part of our proposals. We feel really passionately about the importance of this service because we’ve seen clients blindsided by unexpected balance due amounts. In some cases, the windfall creating the tax liability has already been spent leaving clients scrambling to come up with a payment. Or needing to enter into an installment agreement with the IRS. Or pay penalties and interest on a late payment.

This is especially important if you receive stock compensation. Many of our first time clients come to us after having a shocking balance due for the first time.

Stock compensation is notorious for this.The IRS only requires employers to withhold at a 22% Federal withholding rate. However, some employers are generously allowing employees to withhold more. If your company only withheld at 22% and your taxable income is more than $89,000 single or $178,000 married, then it’s a good bet you’re underwithheld. (Same goes for bonuses and sales commissions, by the way. Still all withheld at 22%!)

The Cure

There is no better time than the present to start planning for your tax future. Even if you’ve been burned by a big balance due in the past, now is the time to get ahead of your tax future for 2023.

Our firm offers tax planning solutions to help you get ahead. If you haven’t taken advantage of these in the past, please reach out to us for more information.

If you aren’t currently paying for planning services, all of our clients are free to use our client portal system, Liscio, to ask us questions throughout the year. Be sure to take advantage of this included service. We are always happy to provide some general guidance and point out situations where more in depth work is suggested.