A significant number of our clients work for growth-oriented companies that include restricted stock and/or stock options as part of their compensation package. It is common for a new client to have a large, concentrated position in their employer’s company stock or to be building a new stock position under our counsel.

While restricted stock units (RSUs) in public companies offer limited tax planning opportunities, incentive stock options (“ISOs”), non-qualified stock options (“NSOs”) and restricted stock awards (RSAs) create significant opportunity – and risk – to optimize tax planning. Some companies allow their employees to exercise and be taxed on the fair market value of their equity before it vests by filing an 83(b) election. Lyell can guide clients through this process and advise on pros and cons of exercising unvested stock options. In addition, clients with ISOs encounter a range of tax planning opportunities with exercise-and-hold strategies within the context of their personal profile for both public and private companies. In many cases, clients can initiate the holding period for long-term capital gains without incurring incremental tax in the exercise year.

Lyell can create an individualized framework to, at times, methodically reallocate from their employer’s equity position into a more diversified investment portfolio. We can advise on how to structure a formal 10b5-1 plan that would allow flexibility to sell stock during blackout periods. If a formal trading plan is not in place employees are typically allowed to sell shares following the employer’s earnings when a “trading window” opens. Lyell can then advise on how many shares and which specific lots are optimal to be sold.

Company founders and early executives may be eligible for Qualified Small Business Stock (“QSBS or 1202”) treatment that offers beneficial tax outcomes upon a successful exit. Lyell can identify these situations and work with the client’s tax preparer.

Lyell can also assist clients through M&A exits or IPO liquidity events if there are decisions on selling shares. Part of this consultation includes how proceeds can be incorporated into their overall investment strategy.