Spencer Hulse at High Net Worth Magazine compiled tax planning strategies for executive compensation, drawing on advisers who work with equity-heavy pay packages. The premise is one I see constantly: high-net-worth executives leave significant money on the table through poor tax planning around compensation, mostly because each grant gets handled in isolation instead of as part of a multi-year roadmap.
My contribution was the 83(b) election. Filing an 83(b) election on early restricted stock can shift tax from the future higher value to today's lower grant value. When restricted stock is granted at a low valuation, an executive can elect to be taxed on it immediately, at that low value, rather than at each vesting date as the value climbs. If the company grows, the difference between paying ordinary income tax on a small number now and a large number later can be enormous, and all future appreciation becomes capital gain.
The catch is the deadline. The election has to be filed with the IRS within 30 days of the grant, and there is no extension and no fix for missing it. Executives at early-stage companies who learn about 83(b) at their first tax appointment learned about it too late.
The broader lesson from the piece is to treat compensation as a portfolio with a calendar: know when each grant vests, what tax it triggers, and how it interacts with the others. Managed together, the same package can produce a materially different after-tax result.
Read the full article at High Net Worth Magazine →
