Category: Investment

Imagine this…

There’s a burglary in your neighborhood (not your house fortunately), but you have a 2-week trip planned and no one will be home.

What do you do to protect your home while you’re away?

Do you take precautionary measures?

Talk to neighbors and ask them to keep an eye on your house?

Maybe activate an alarm system or install cameras?

If you’re like most people, you’d spend at least a few minutes proactively planning so your home doesn’t get broken into or burglarized, right?

Just for a moment, I want you to think about why you’d take these steps.

Ultimately, whatever happens while you’re gone is completely out of your control, right?

I’m guessing you’d argue back, “Yes, it is out of my control, but I CAN control a few things, and I’m willing to do everything I can to protect my home!”

Your mindset is 100% logical.

For sacred possessions and relationships in our life, we do everything we can to control the uncontrollable.

So let me ask you this…

Are you taking the same approach that may help protect your investments from a volatile market?

Volatility is here — like the burglar lurking through the night in your neighborhood plotting his next break-in.

You don’t know when the burglar will strike, or which home he’ll hit.

Chances are he’s going to go after the most vulnerable house with minimal lighting and no alarm system.

Just like volatility or downturns could metaphorically “rob” certain investment portfolios of value because they are more vulnerable than others (that’s why it’s so important to proactively prepare by assessing your current situation).

Unlike a home whose valuables are insured and mostly replaceable (except those heirlooms and sentimental pieces), your investment portfolio isn’t insured against market loss.

That’s why it’s so important to take these crucial and proactive steps that may help protect your investments.

In the wake of recent market volatility predictions, I prepared this 4-minute read and flowchart that I think you’ll find incredibly valuable.

My team’s most recent publication, Investments Facing Volatile Markets: A Simple Flowchart to Determine What (if Anything) You Should Do, will guide you through an extremely simple 3-step process to discover:

• How to assess your current investment situation whether you’re 10 years away, 5 years away, or already in retirement
• The 3 or 4 critical questions you need to ask yourself that will determine what you should do next (if anything)
• Your level of confidence with your current investment strategy and what you can do about it

You’ll leave with a crystal-clear picture of what you should do next (if anything) that may help preserve and protect your investment health — just like how you’d protect your house while you’re away.

My goal in sharing this free article with you is to help you feel confident that you’ve done everything you can to control the uncontrollable.

You have retirement income you’ll be depending on in the next 10 years, 5 years, or maybe even right now.

Please take the time to examine this flowchart — it will empower your work-free life!

If you have any questions, I’m here to help.

>>>Download Now (free): Investments Facing Volatile Markets: A Simple Flowchart to Determine What (if Anything) You Should Do

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to professionals with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn, Facebook, Twitter or visit www.archerim.com.

Do you know how much risk you’re comfortable with? Scientifically pinpoint your tolerance for risk using Nobel Prize-winning research.

Find out now.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to professionals with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn, Facebook, Twitter or visit www.archerim.com.

What kind of investor are you? We broke down your investing mindset into 7 questions to show how your personality can lead to investing extremes. You can download and take it right here.

Self-knowledge is power.

Here’s an example of what you’ll learn:

Are you the kind of person who reads the financial headlines every day or do your financial statements pile up on the counter?

It all depends on your personality. My quiz can help you discover your own mindset in just 7 questions.

You might think that more information is always better, but it’s actually a balancing act.

Getting into the details too much can cause anxiety and take up time that you could be using for other purposes.

Ignoring your finances completely puts you at the other end of the spectrum — passive and potentially out of touch.

Where do you fall on that spectrum? Take our investing personality quiz to find out what biases you have and what they mean for your investing.

I think you’ll be glad you did.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to professionals with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn, Facebook, Twitter or visit www.archerim.com.

You have company stock. That’s great! But just like any other financial asset, how you use it makes all the difference. Between the different types of company stock, vesting schedules, and portfolio allocation, there are many financial planning considerations to be aware of.

On top of all that, we can’t forget about taxes. Whether it’s using a Section 83(b) election or watching your tax rates, there are a few taxation strategies you can use to maximize your employee stock options.

Here’s one more to add to your arsenal.

NET UNREALIZED APPRECIATION

Have you heard of net unrealized appreciation (NUA)? You most likely haven’t, but it can make a significant difference when it comes to how you are taxed on your 401(k) distributions.

Simply put, NUA is the difference between the price of the stock when you got it and what it’s worth today. 

HOW IT WORKS

You have a workplace retirement plan with a sizable amount of company stock. If you roll your 401(k) into an IRA, your stock appreciation will be taxed at ordinary income tax rates when you take a distribution. Those tax rates can be as high as 37%.

NUA to the rescue! This strategy allows company stock from a 401(k) to be split off from your other savings and rolled over to a taxable account so you can take advantage of capital gains taxes, which currently top out at 20%.

DO THE MATH

Want to see some numbers?

Let’s imagine you have company stock with a cost basis of $100,000. After many years, that stock is now worth $400,000. Your NUA is $300,000. If you go the traditional route of rolling that $400,000 to an IRA and your tax rate is 37%, you will owe a whopping $148,000.

But if you use the NUA strategy and move the shares to a taxable account, you would pay income tax on the cost basis in the year you made the rollover, coming out to $37,000. If you then sold the shares and paid the 20% capital gains rate, you would owe another $60,000 on the NUA amount of $300,000 for a total of $97,000. That’s a tax savings of $51,000!

IS NUA RIGHT FOR YOU?

Are you interested in using the NUA strategy? If any of these given situations applies to you, you are eligible:

• You are leaving or have left the employer you received your stock from.
• You are 59½ and your plan allows in-service distributions from your retirement plan.
• You have suffered a disability.
• You are a family member of someone with company stock who has passed away.

Beyond eligibility requirements, you will want to run some numbers based on your unique financial circumstances. Look at how much your stock has appreciated, what your current income tax bracket is, and if you can afford to pay income taxes on the cost basis of your stocks up front.

WE CAN HELP YOU REDUCE YOUR TAX BILL

NUA, along with other tax minimization strategies, has many ins and outs, and its success will depend on your situation and executing the transfer and sale properly.

We are here to help you understand the net unrealized appreciation strategy and all the other aspects of financial planning for tech executives or those with company stock.

Schedule a quick call with us and see if we can help you make the most of your stock benefits.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to executives with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

Everyone wants to be happier. Just look at the books lining the shelves at your local bookstore. You’ll see everything from The Happiness Project to The How of Happiness to Hardwiring Happiness.

While many people believe that their happiness will increase when they have more money, few people connect their employee stock compensation to happiness.

Thanks to mystockoptions.com, we can see how stock compensation, if fully appreciated and understood, can improve your happiness.

1. WEALTH CREATION

When your company’s stock price goes up, your wealth increases, and increased wealth can improve your quality of life. But it’s about more than the number in your bank account, it’s about what you do with it.

If you use your increased wealth to fund your passions, pursue your dreams, and invest in others, it can improve your well-being and put you on the path toward greater happiness.

2. ANTICIPATING THE FUTURE

Sometimes planning for a trip or a big event is half the fun, as the sense of anticipation builds excitement.

The money you accumulate from your company’s stock plan can give you that same sense of anticipation as you plan how you will use the money and the difference it will make in your future.  

3. A FEELING OF BEING SPECIAL

Not everyone receives company stock. If you receive regular stock grants, that’s a benefit that should make you feel special. You can further your happiness by increasing your gratitude, appreciation, and enthusiasm about this benefit.

4. DISCOUNTS AND DEALS

Getting something valuable at a discount often conjures up feelings of pride and euphoria. If you are part of an employee stock purchase plan (ESPP) and have access to a discounted purchase price, you can experience those same emotions with your stock.

5. CONTROL OVER TAXES

While taxes are a necessary evil, stock options can give you the opportunity to delay an increase in income taxes.

Whether you receive a grant of stock options or stock appreciation rights or you’ve enrolled in an ESPP, you may be able to decide when to receive the income and pay taxes on it. Having control over something that you normally can’t control can make you feel empowered.

6. DONATIONS AND GIFTS OF COMPANY STOCK

Studies have shown that generosity increases happiness. (1) To capture some of that happiness, consider donating appreciated company stock that you’ve held long-term.

This type of gift can make a significant difference for the organizations you support. As an added benefit, stock donations can also meaningfully lower your expected taxes.

7. A SENSE OF OWNERSHIP

When you own company stock, you essentially own a piece of your company. Your ownership can make you happier since you share in the success the company gains from your work. Ownership gives you a sense of pride and control and possibly even some influence and input into your company’s operations.

Since we spend so much of our lives working, the ensuing happiness you feel from ownership at work will play a big role in your happiness in other areas of your life.

8. STRONGER RELATIONSHIPS

Strong relationships make us healthier and happier, (8) and while it may seem odd to link stock compensation with relationships, the conversations you have with your colleagues about how to handle stocks and how you’ll use the gains can improve your friendships.

But be sure to turn to a professional as well. Your coworkers might be knowledgeable and well-meaning, but their advice and enthusiasm could lead to unnecessary risks, such as overconcentration in stock. The results of risky behavior often cause more stress than happiness.

9. FINANCIAL SECURITY

Imagine that you don’t have to worry about money anymore, that your finances are secure and the future is funded. That picture of financial security probably brings excitement and happiness.
Your stock compensation can help you on the journey to financial security by bridging the gap between your Social Security benefits and other retirement accounts, thereby minimizing your stress and worry and increasing your confidence.

10. MINDFULNESS AND MEANINGFULNESS

It’s all too easy to get caught up in the daily minutiae of work, but keep a mindful perspective by remembering that your hard work can make a difference in elevating your company’s stock price.

This attitude increases ownership, engagement, optimism, and happiness by making your job even more meaningful and motivating you to reach new levels of personal and professional success.

IS YOUR STOCK MAKING YOU HAPPIER?

If you have company stock and aren’t experiencing the added happiness it can bring, Archer Investment Management can help you optimize your finances so that your stock options bring you more joy.

Schedule a quick call with us and see if we can help you make the most of your stock benefits.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to executives with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

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(1) http://time.com/4857777/generosity-happiness-brain/

(2) https://www.psychologytoday.com/us/blog/the-mindful-self-express/201612/do-relationships-make-us-healthier-and-happier

If you’re like other tech executives, you probably have your fair share of stock grants. Equity incentives are very popular these days but can be confusing—especially from a tax standpoint.

There are different kinds, various ways of taxing them, and even some little-known opportunities for minimizing taxes.

One such opportunity is called a Section 83(b) election.

WHAT IS A SECTION 83(B) ELECTION?

Never heard of a Section 83(b) election?

You’re in good company; hardly anyone else has either!

However, it’s something that could potentially save you a lot of money on taxes, so you should be aware of it.

Equity grants are considered taxable compensation, and a Section 83(b) election tells the IRS that you want to report income tax the year your stock is granted instead of waiting until it vests.

Normally, you don’t pay taxes until the stock vests and you actually take ownership of it. With an 83(b) election, you choose to pay taxes on the stock before it actually becomes yours.

THE RISKS & REWARDS OF A SECTION 83(B) ELECTION

Why would you choose to pay taxes on something that’s not actually yours yet? Because the tax bill might be a lot lower then!

The taxes you pay are based on the fair market value of the stock.

When you are granted stock that doesn’t vest for 3 years, there is a good chance the price of the stock will increase during those 3 years.

The 83(b) election allows you to calculate your tax bill based on the lower stock price on the grant date rather than the higher price at vesting. The higher vesting price could also push you up into the next, higher tax bracket. In fact, tax rates could increase during those 3 years and you would end up paying a higher rate overall.

So, why wouldn’t you choose this option?

Well, there are a number of risks involved.

First of all, the taxes you pay are not refundable. If you leave your company before the stock vests, you will have paid taxes on stocks that you never received. A Section 83(b) election is nearly impossible to rescind or cancel once made. If you pay taxes early, you risk paying taxes that you will never actually owe.

Also, the stock price could go down between the grant and vesting date, which leaves you paying more taxes than you would have if you had waited.

Another risk is that the tax rates will go down, as they did with the Tax Cuts & Jobs Act. If you are married with a taxable income of $300,000, you would have gone from the 33% tax bracket in 2017 down to 24% for 2018.

That’s a big difference.

HOW A SECTION 83(B) ELECTION WORKS

To make a Section 83(b) election, you have to contact your local IRS office within 30 days of the grant date.

Also, you will need to have enough cash up front to pay the taxes, since the stock is not yet yours to sell. Let’s take a look at how a Section 83(b) election would play out in real life.

Let’s say you are granted 3,000 shares when they are worth $15 each and you are in the 32% tax bracket. The shares vest after 3 years when they are worth $50, at which point you sell them with a capital gains rate of 18.8% (including the Medicare surtax).

This is what you would end up paying in taxes for each option:

This example results in a $13,860 tax savings with the Section 83(B) election.

If the income from the grant pushed you into a higher tax bracket, the savings would be even greater!

As you can see, an 83(b) election has the potential to save you a lot of money in taxes.

However, it is not without its risks.

NEXT STEPS…

You don’t have to weigh the reward and risks of an 83(b) by yourself!

We are here to help you understand an 83(b) election and all the other aspects of financial planning for tech executives.

It is important to make an educated decision before the IRS window closes. You only have 30 days once the stock has been granted.

Schedule a quick call with Richard, at Archer Investment Management to discuss the pros and cons of making an 83(b) election for yourself.

You’ve got more to tackle on your to-do list than worry about how to make smart decisions with your money.

At Archer, we make managing your money easy, so you can get back to your life.

Not a tech executive? That’s okay! We can help you too.

Schedule a quick call with us and see if we can help simplify your finances.

ABOUT RICHARD

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to executives with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

Credit should be given to Mystockoptions.com for some of the excellent content in this article.

Incorporating restricted stock and RSUs (restricted stock units) into your financial plan can get complicated. You will need to make plenty of decisions, such as how long you will hold your shares, if you should sell them and put them into an alternative investment, or if you will use the money to meet one of your financial goals. If your head is spinning, take heart. Here are 10 simple tips to help you maximize your restricted stock and RSUs.

RULE NO. 1: SET GOALS

In order to make the wise decisions, you need to determine what you hope your stock will do for you. When you eventually sell the shares, where do you want that money to go? How do your shares and their potential sale fit in relation to your other income, 401(k), and other savings?

RULE NO. 2: KNOW YOUR VESTING SCHEDULE

It is essential to know the dates your grants will vest since you will need to pay taxes on the resulting income. If you want to avoid a hefty tax bill, it requires some forethought.  Your vesting schedule will depend on your company and the conditions they place on the stock, but it is usually time-based, requiring you to work at the company for a certain period before vesting can occur.

RULE NO. 3: UNDERSTAND THE CONSEQUENCES IF YOU WERE TO QUIT

If you leave your company before your restricted stock vests, you will usually forfeit the unvested grants. There can be exceptions to this, so be sure to gather all the details from your company before you make the decision to leave. If you have a significant amount of shares that haven’t vested, it might be worth it to stay with your company long enough to benefit from this reward for your service.  

RULE NO. 4: CONSIDER TAXES

Your taxable income will be the market value of the shares at vesting and is subject to federal income tax, Social Security, and Medicare, plus any state and local tax. Your company may offer you a few ways to pay taxes at vesting, such as withholding shares for taxes, a sell-to-cover transaction for taxes of a portion of the shares, a salary deduction, or simply a check payment.  When you eventually sell the shares, you will pay capital gains tax on any appreciation over the market price of the shares on the vesting date.

RULE NO. 5: LOOK INTO AN 83(B) ELECTION

With restricted stock (not RSUs), you have the option to make a Section 83(b) election with the IRS within 30 days of the grant date. An 83(b) election allows you to pay taxes on the value of the stock at grant date rather than vesting date. If you believe the stock price will be higher on the vesting date and you are confident you will meet vesting requirements, this can be a beneficial move for you. Also, moving the time of taxation to the grant date starts the capital gains holding period earlier, which can make a difference at the eventual sale of the shares.

RULE NO. 6: WATCH YOUR TAX RATES

Be sure to anticipate what restricted stock and RSUs will do to your tax rates when you vest.

The extra income could push your income into a higher tax bracket, raise your rate of capital gains tax, and trigger extra Medicare taxes, possibly costing you thousands of dollars. If you plan ahead, you can implement strategies that could keep you in the lower tax brackets.

RULE NO. 7: DECIDE WHETHER TO HOLD OR SELL

Whether or not you sell your shares at vesting will depend on multiple factors, such as tax planning, financial planning goals, and company restrictions.  If you sell immediately, you can use the shares to pay for the taxes incurred at vesting. If you hold your shares, your capital gains tax will be affected when you sell in the future. Your decision may be influenced by your cash needs, upcoming life events, and other financial planning factors, including diversification, dividends paid on your stock, and alternative investments.  If your company is publicly traded, there can be blackout dates that prevent you from trading and stock ownership guidelines that require you to keep a certain amount of stock. With private companies, there are probably restrictions in your grant or SEC rules that will impact when you can sell.

RULE NO. 8: REMEMBER DIVIDENDS

Even though you can’t transfer or sell restricted stock until it vests, the stock is still issued to you and in your name, which means you could receive dividends. If you have unvested RSUs, this does not apply. But when a company pays dividends on outstanding shares of stock, it can choose to pay dividend equivalents on RSUs. These may be deferred or accrued to additional units and then settled when the unit vests.

RULE NO. 9: DON’T LET COMPANY STOCK SKEW YOUR PORTFOLIO

It’s a cliché, but when it comes to your portfolio, you don’t want to keep all of your eggs in one basket. You don’t want too much of your net worth tied up in your company stock, and since restricted stock and RSUs vest over time, it’s easy to miscalculate how much of your portfolio is reliant on the success of your company. In order to avoid overconcentration, work with a professional to determine how much your holdings in company stock contribute to your overall net worth.

RULE NO. 10: RELY ON A PROFESSIONAL

This stuff is complicated. Sound financial planning, investing, and tax management require specialized knowledge, skills, and experience. At Archer Investment Management, we specialize in serving tech executives with their financial planning needs. We understand your needs and complexities and are here to make sure your financial plan is airtight. If you have ESOs, restricted stock, or RSUs, don’t hesitate to reach out to us to help you maximize these benefits and incorporate them into your overall financial picture. Click here to schedule a phone call today!

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to technology executives. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

As you have heard, Spredfast has announced a merger with Lithium Technologies. (1) When companies undergo a change this significant, there are often ripple effects that impact those who work for the company. In this case, you may have a large sum of Spredfast options coming due this year.  Do you know what to do? What do you need to know about your employee stock options?

WHAT ARE EMPLOYEE STOCK OPTIONS?

ESOs offer the holder the right to buy a certain amount of company shares at a predetermined price for a specified period of time. Employees are given a share in the potential growth of their company’s value without actually risking their own money, until they decide to exercise those options and purchase shares of the company’s stock.

HOW DO EMPLOYEE STOCK OPTIONS WORK?

Let’s say you work for Company XYZ, and they have issued employee stock options to you at $50. In this scenario, you would have the right to purchase 1,000 shares of XYZ stock at $50 (the grant price) after three years (the vesting period) and within ten years (the expiration date) of the grant date.

Taking the example above, what happens if, after four years, the market price of XYZ is at $100? In this case, you can purchase 1,000 shares at $50, then sell them at the $100 market price, pocketing a $50,000 profit!

But what if, after four years, the market price of XYZ is at $25? At this point, you would not have to buy the shares at a loss. Instead, you can wait until the 10-year expiration date for the stock price to potentially surpass the grant price.

WHAT ARE THE DIFFERENT TYPES OF EMPLOYEE STOCK OPTIONS?

There are two types of ESOs that a company can grant: Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs). NSOs are the most common type offered by employers.

Non-qualified stock options do not qualify for special tax treatment and result in additional taxable income to the recipient at the time that they are exercised, the taxable amount being the difference between the grant price and the market value on that date. In addition, when NSOs are exercised, income, Social Security, and Medicare taxes will be withheld.

In contrast, incentive stock options qualify for special tax treatment and are not subject to Social Security or Medicare withholding taxes.

WHAT IS THE TAX TREATMENT OF EMPLOYEE STOCK OPTIONS?

As discussed above, it is clear that NSOs and ISOs are treated differently when it comes to taxation. However, for both types, the grant of the option itself is never considered a taxable event.

For NSOs, taxation begins at the time that the option is exercised. Once exercised, the purchase of discounted stock is considered compensation and is taxed at ordinary income tax rates. When those purchased shares are sold, either short-term or long-term capital gains taxes may be owed. With short-term capital gains, the employee would be subject to tax at their ordinary income tax rates. With long-term capital gains, the tax would be significantly reduced.

Gains on ISOs are not subject to payroll taxes. However, ISOs are a preference item for the alternative minimum tax (AMT) calculation. Also, if you exercise and sell the stock within a year, you will pay ordinary income tax on the difference between the market price at sale and the grant price, much like the treatment of NSOs.

When you exercise the ISO but hold the stock, tax treatment can get quite complicated. In this situation, the difference between the grant price and the market price then becomes an AMT preference item, so exercising ISOs might mean you’ll pay the AMT. If you hold the shares for one year from exercise date (and two years from the grant date of the option), the difference between grant price and market price when you sell the option is taxed as lower long-term gains rather than ordinary income.

HOW SHOULD EMPLOYEE STOCK OPTIONS FIT INTO YOUR FINANCIAL PLAN?

It is important to think of your ESOs in the context of your overall financial plan. First and foremost, your financial plan should be based on clearly defined goals for yourself and your family. Once you have your goals set, how can ESOs best help you reach them? This is never an easy question to answer, but the more you understand about the ESOs at your company and their future growth potential and taxation, the better off you will be.

As you make your decision on whether or not to accept Spredfast’s offer of an ESO buyout, it’s critical to take all aspects of taxation, income, and your financial plan into consideration. At Archer Investment Management, we specialize in helping corporate executives make the most of their complex benefits. We’d love to help you with this important decision. Download our StockOpter® Stock Compensation Summary Analysis report, check out our case studies to see how we’ve helped clients like you, and schedule a phone call today!

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care to executives in technology firms. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

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(1) https://www.spredfast.com/about-us/social-media-news/spredfast-and-lithium-technologies-announce-merger

If you work for a large company, it’s likely that you have the opportunity to take advantage of a comprehensive benefits package. Understanding all of the perks that you are entitled to is crucial to your long-run financial success. One perk I’d like to highlight is Employee Stock Options (ESO). Through my explanation of the ins-and-outs of ESO’s, you will have a better understanding of how you can make the most of them.

WHAT ARE EMPLOYEE STOCK OPTIONS?

ESO’s offer the holder the right to buy a certain amount of company shares at a predetermined price for a specified period of time. Employees are given a share in the potential growth of their company’s value, without actually risking their own money – until they decide to exercise those options and purchase shares of the company’s stock.

HOW DO EMPLOYEE STOCK OPTIONS WORK?

Let’s say you work for Company XYZ, and they have issued employee stock options to you at $50. In this scenario, you would have the right to purchase 1,000 shares of XYZ stock at $50 (the grant price) after three years (the vesting period) and within ten years (the expiration date) of the grant date.

Taking the example above, what happens if, after four years, the market price of XYZ is at $100? In this case, you can purchase 1,000 shares at $50, then sell them at the $100 market price – pocketing a $50,000 profit!

Alternatively, if after four years, the market price of XYZ is at $25? At this point, you would not have to buy the shares at a loss. Instead, you can wait until the 10-year expiration date for the stock price to potentially surpass the grant price.

WHAT ARE THE DIFFERENT TYPES OF EMPLOYEE STOCK OPTIONS?

There are two types of ESO’s that a company can grant: (1) Non-qualified Stock Options (NQSO’s) or (2) Incentive Stock Options (ISO’s). NQSO’s are the most common type offered by employers.

Non-qualified stock options (NQSO’s) do not qualify for special tax treatment, and result in additional taxable income to the recipient at the time that they are exercised, the taxable amount being the difference between the grant price and the market value on that date. In addition, when NQSO’s are exercised, income, Social Security, and Medicare taxes will be withheld.

In contrast, Incentive Stock Options (ISO’s) qualify for special tax treatment and are not subject to Social Security or Medicare withholding taxes.

WHAT IS THE TAX TREATMENT OF EMPLOYEE STOCK OPTIONS?

As discussed above, it is clear that NQSO’s and ISO’s are treated differently when it comes to taxation. However, for both types, the grant of the option itself is never considered a taxable event.

For NQSO’s, taxation begins at the time that the option is exercised. Once exercised, the purchase of discounted stock is considered “compensation” and is taxed at ordinary income tax rates.  When those purchased shares are sold, either short-term or long-term capital gains taxes may be owed. With short-term capital gains, the employee would be subject to tax at their ordinary income tax rates.  With long-term capital gains, the tax would be significantly reduced.

Gains on ISO’s are not subject to payroll taxes. However, ISO’s are a preference item for the alternative minimum tax (AMT) calculation. Also, if you exercise and sell the stock within a year, you will pay ordinary income tax on the difference between the market price at sale and the grant price, much like the treatment of NQSO’s.

When you exercise the ISO but hold the stock, tax treatment can get quite complicated. In this situation, the difference between the grant price and the market price then becomes an AMT preference item, so exercising ISO’s might mean you’ll pay the AMT. If you hold the shares for one year from exercise date (and two years from the grant date of the option), the difference between grant price and market price when you sell the option is taxed as lower long-term gains rather than ordinary income.

HOW SHOULD EMPLOYEE STOCK OPTIONS FIT INTO YOUR FINANCIAL PLAN?

It is important to think of your ESO’s in the context of your overall financial plan. First and foremost, your financial plan should be based on clearly defined goals for yourself and your family. Once you have your goals set, how can ESO’s best help you reach them? This is never an easy question to answer, but the more you understand about the ESO’s at your company and their future growth potential and taxation, the better off you will be.

We’d love the opportunity to develop a custom ESO strategy for you. Click here to schedule a phone call and please visit us at Archer Investment Management.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful executives and business owners, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and an MBA from the University of Texas, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com. 

For most of us, one of our biggest investments is our home. As such, we often want to improve it, making it the best it can be with the hope of seeing a significant return when we sell. 

One of the big buzzwords in the homeownership world right now is sustainability. People are becoming more aware of how their lifestyles affect the environment and want to do their part to address climate change. One way to do this is to power your home with 100% renewable energy. But how can you do this without breaking the bank? Is it a worthwhile investment? 

WHAT IS RENEWABLE ENERGY?

First, a definition is in order. Simply put, renewable energy is electricity generated from renewable sources such as wind, sunlight, biogas, and tidal energy. Energy from these sources is limitless and clean and it does not add pollution to the atmosphere. Non-renewable energy sources like coal and natural gas have environmental costs, such as emissions into our air and water.

Is It Worth The Cost?

One question many people have is whether or not switching to renewable energy will save them money down the road. I recently had a financial planning client asking about this exact topic. They wanted to do their part to address climate change by powering their home with 100% renewable energy and asked if they could afford a large solar array on the roof of their home.

The problem was that a solar array big enough to completely power their home was going to cost almost $20,000. When we crunched the numbers, we realized it might take about ten years for them to recoup the upfront costs. Instead of the high initial investment of a solar array, I suggested another solution that would upgrade their home to 100% renewable energy sources for less than $100 extra per year. At that price, my client was intrigued. Are you?

The Power of Wind

Currently, fossil fuels make up 81.5% of U.S. energy production and about 40% of total US energy consumption is from the residential and commercial sectors. (1)  However, renewable energy production was at record highs in 2016. From a local perspective, Austin Energy generates about 30% of its energy from wind, solar, and biomass. (2)

Wind power is a net zero energy source, meaning it has zero fuel cost, produces zero emissions, and requires zero water use for production. If you live in Austin, you have the opportunity to take advantage of the GreenChoice program, which allows you to support renewable energy by ensuring Austin Energy purchases Texas wind energy to match 100% of your usage instead of energy produced with fossil fuels. (3) When you subscribe to GreenChoice, you make a lasting contribution to Austin’s quality of life and take a leadership role in moving Austin toward its community goal of 55% renewable energy by 2025 and 100% by 2050.

Subscribing to GreenChoice means that Austin Energy can purchase wind energy to meet your needs instead of electricity produced from natural gas or coal-fired power plants. Relying less on fossil fuel combustion for energy means less air pollution and less water wasted in drought-prone Texas. Your purchase of GreenChoice energy supports the growth of the renewable energy industry in Texas, which creates new jobs in the state and produces new revenues for school districts.

In 2016,  Austin Energy GreenChoice customers invested in more than 719 million kWh of renewable energy. This translates into reduced carbon emissions equivalent to the impact of more than 11 million trees. If that isn’t enough to entice you to make this change, the average Austin residential customer can switch to wind energy for about an additional $6.70 per month with no contract, no subscription fees, and no penalty for unsubscribing.  Additionally, new and existing Archer Investment Management clients who switch to Austin’s GreenChoice program before the end of 2017 will receive a one-time $100 discount off our fees.

IS RENEWABLE ENERGY RIGHT FOR YOU?

As with any financial decision you make, it’s important to do your research and talk to experts in order to make an educated decision. At Archer Investment Management, we ascribe to a disciplined, unemotional, and highly diversified investment approach, favoring objective and time-tested advice to “trendy” stocks. If you want to invest into companies that further the social missions that you value, reach out to us for a complimentary portfolio review. Click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com. 

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(1) https://www.eia.gov/tools/faqs/faq.php?id=86&t=1

(2) http://austinenergy.com

(3) http://austinenergy.com/wps/portal/ae/green-power/greenchoice/greenchoice-renewable-energy