Tax Strategies
13 Types Of Tax
"In this world, nothing is certain except death and taxes" ~ Benjamin Franklin
Stock Comp Can Involve as Much as 13 Types of Tax
Yes, you read that right. There are as many as 13 different types of taxes (or statutes/exclusions) that can come into play with stock-based compensation. Some are certainly more common and/or relevant than others. But having at least an understanding if; how; and when the specific tax types may apply to your situation or chosen strategy should help you make better decisions. So we've provided a high-level overview of each type:
13 Types of Tax
(1) Federal Income Tax. Everyone should be familiar with this. If you live in the United States and earn income, in most cases you will need to pay federal income taxes on it.
(2-4) State/Local/City Income Tax. State, local, and city income taxes vary by your locale. Some states assess taxes in excess of 10% of income, while others don't charge one at all. Similarly, some localized areas (e.g. counties/school districts) and some cities (e.g. New York City) assess their own income tax rates, though this is less common overall.
(5-7) Payroll/FICA Taxes [Social Security; Medicare; Medicare Surcharge]. Social Security and Medicare derive from the Federal Insurance Contribution Act ("FICA") and are assessed when you are paid (e.g. "payroll").
(8-10) Capital Gains & Net Investment Income Tax [Short-term; Long-term; NIIT]. When you buy/sell most investment assets (as well as many others), any gains you realized are taxable (via Capital Gains tax rates). Additionally, NIIT went into effect in 2013, and applies to most realized capital gains (as well as other investment income).
(11) Alternative Minimum Tax ("AMT"). AMT is a parallel federal tax system in the US. Every year when you calculate and file your taxes, two calculations are conducted (Standard and AMT), and you owe/pay the higher of the two. For tech workers, AMT most frequently becomes a consideration in the year(s) you exercise ISOs.
(12) Estate/Death Tax. When you pass away, your assets may be subject to taxation before they pass on to your heirs. Some other special (typically tax-beneficial) things also occur, such as your assets receiving a "step-up in basis".
(13) Qualified Small Business Stock Exclusion ("QSBS"). The QSBS exclusion is a tax benefit that can apply when you invest in qualified small businesses. The theory is that investing in small businesses can be riskier by nature, but doing so helps build and grow the economy --> and thus the government created the QSBS exclusion to help encourage people to do so.
Taxation is complex. We provide in the pages herein what we believe are the key highlights for each tax type in a 2-3 minute read for reference purposes. It is not tax advice and does not discuss the vast majority of the finer points.
Work with 30/40 Wealth
Have a big equity or tax decision ahead?
We're a fee-only fiduciary for tech employees with a lot of company equity. We build your multi-year plan: when to exercise options, what to sell and when, and how to cut the tax bill. Then we stay with you for the years that follow.
You're likely a fit if:
- You have $2M+ in company equity, including options
- Your next big decision is coming up: an IPO or lockup, a tender offer, exercising options, selling a large position, or leaving your company
- You want ongoing help with all of it: your equity, taxes, investments and the plan that ties them together
Kris Barney, CFA, EA
$750M+ in equity compensation advised
Fees from $12,500 a year, based on the assets we manage
We take on 1–2 new clients a month
Book a 30-minute fit call →Free and no obligation. If we're not the right fit, we'll say so.
See who we work with →Most Similar
Selected by content similarity, not just shared category.
Next Step
Want this applied to your situation?
A 30-minute consult will tell you whether the framework in this article applies cleanly to your equity package — and if so, what the next three moves are. No pitch.