For professionals at private or newly public companies, equity compensation can become a substantial part of personal wealth. It can help fund a home, provide greater career flexibility, or bring retirement closer. It also introduces decisions that a salary alone does not: when to exercise options, how to pay taxes on shares you cannot yet sell, and how much of your financial future to keep tied to one company.

Those decisions are connected. An exercise that looks attractive from a tax perspective may require cash you need elsewhere. Holding shares for a lower tax rate may leave you exposed to a decline in the stock. An IPO may create a path to liquidity while still leaving you unable to sell for months.

A useful plan starts with understanding your awards, then considering how they fit into your broader financial life.

The tax discussion below summarizes general U.S. federal rules as of October 2026. State treatment can differ. New Jersey, for example, does not distinguish between short-term and long-term capital gains.

Start With What You Have—and When It Becomes Taxable

Common forms of equity compensation include incentive stock options, non-qualified stock options, restricted stock, restricted stock units, and performance stock units.

Each follows different rules. Even awards with similar names can have different vesting conditions, tax consequences, and sale restrictions.

One important distinction is between compensation income and capital gains. The value you receive through an award may be taxable as compensation before you sell any shares. Once you own the shares, subsequent changes in value generally produce capital gains or losses when you sell.

A later decline in the stock price generally does not reverse compensation income already recognized from an RSU settlement or NQSO exercise. Selling at a loss may create a capital loss, but limits on deducting those losses can leave you with a tax bill even after the shares have fallen substantially.

Your grant agreements and plan documents are the starting point. A stock-plan dashboard is helpful, but it may not tell you everything about expiration dates, departure provisions, or restrictions on selling.

Stock Options: The Exercise Decision Matters

A stock option gives you the right to buy company shares at a specified exercise price, also called the strike price. You acquire the shares when you exercise the option.

Before exercising, consider the purchase cost, potential taxes, and whether you will be able to sell shares to cover either expense.

Incentive Stock Options

Incentive stock options, or ISOs, can provide favorable federal tax treatment. Generally, a qualifying sale requires holding the shares for more than one year after exercise and more than two years after the option grant. Selling earlier can cause some of the gain to be treated as compensation income.

Exercising an ISO generally does not create regular federal income tax. However, exercising and holding the shares beyond year-end may create an alternative minimum tax, or AMT, adjustment based on the difference between the exercise price and the stock’s value. That can mean owing tax while still holding shares you cannot readily sell.

AMT attributable to an ISO exercise may generate a credit against future regular income tax, but using that credit can take time and depends on your subsequent tax circumstances.

For 2026, updated projections are particularly important. The AMT exemption begins phasing out at $500,000 of alternative minimum taxable income for single filers and $1 million for married couples filing jointly. The phaseout rate has also increased from 25% to 50%. A prior-year projection may therefore give a misleading picture of the tax cost of exercising this year. These changes appear in the [IRS’s 2026 tax guidance](https://www.irs.gov/irb/2025-45_IRB).

A tax projection before exercising can help you compare different exercise amounts and timing. It should also consider what happens if the stock falls or remains difficult to sell.

If you are leaving your employer, confirm both the contractual exercise deadline and the deadline for preserving ISO tax treatment. Preserving ISO treatment generally requires exercising within three months after employment ends, although exceptions apply. Your award may have a different contractual deadline.

Nonqualified Stock Options

Nonqualified stock options, or NQSOs, generally create compensation income when exercised, based on the difference between the stock’s value and the exercise price. Subsequent appreciation or decline generally becomes a capital gain or loss when you sell the shares.

Where the plan and trading rules permit, you may be able to exercise and sell all the shares, sell enough to cover exercise costs and taxes, or use outside cash and retain the shares.

Each choice affects both your cash reserves and your exposure to company stock. Keeping every share may preserve more potential upside, but it also puts more of your own money at risk.

If you hold both ISOs and NQSOs, evaluate them together. Which options you exercise, sell, or retain should reflect their different tax treatment, expiration dates, exercise costs, and effect on your company-stock concentration. There is no single order that is best for everyone.

The IRS provides additional detail in its [stock-option guidance](https://www.irs.gov/taxtopics/tc427) and [Publication 525](https://www.irs.gov/publications/p525).

Restricted Stock and the 83(b) Election

Restricted stock involves actual shares that are subject to conditions, often continued employment through a vesting date. Without an election, compensation income generally arises when the shares vest, based on their value at that time less any amount paid.

An 83(b) election allows you to recognize that compensation income at the time of transfer instead. The deadline is generally 30 days after the shares are transferred, which may differ from the award’s grant date.

The election may be attractive when the current share value is low. But it also means recognizing income before you know whether the shares will vest or retain their value. If the shares are forfeited, you generally cannot recover the tax paid on the compensation income included under the election.

Because the deadline is short, this is a decision to review promptly with your tax advisor. The IRS explains the timing and forfeiture rules in its [83(b) guidance](https://www.irs.gov/irb/2012-28_IRB).

RSUs: A Future Promise to Deliver Shares

Restricted stock units, or RSUs, are different from restricted stock. An RSU generally promises future shares or cash once the award’s conditions are satisfied. It does not transfer shares at grant, so an 83(b) election is not available for the RSU itself.

Federal income tax generally arises at settlement, when the shares or cash are delivered. At public companies, vesting and settlement often occur together. Later changes in the value of delivered shares generally produce capital gains or losses when sold.

Holding delivered RSU shares for a year does not turn the compensation already recognized into long-term capital gain. The holding period generally affects the tax treatment of subsequent appreciation. Selling shortly after delivery may produce little additional gain or loss, depending on how the sale price compares with your tax basis.

Social Security and Medicare taxes can follow different timing rules and, in some cases, become due before settlement. The IRS discusses this distinction in its [explanation of restricted stock and RSU taxation](https://www.irs.gov/pub/irs-wd/24-0010.pdf).

Private companies may use “double-trigger” RSUs, which typically require both service-based vesting and a qualifying liquidity event. The award terms determine when those conditions are satisfied and when settlement occurs.

Once shares are delivered and available to sell, a useful question is:

If you received the same after-tax amount as a cash bonus, how much would you choose to invest in your employer’s stock?

That question can help separate a deliberate investment decision from simply continuing to hold what you received.

Also, do not assume shares withheld by your employer cover your entire tax bill. Withholding is a payment toward your taxes; your actual liability depends on your full tax situation.

Performance Stock Units: Plan for a Range of Outcomes

Performance stock units, or PSUs, tie the payout to specified company or market measures, often alongside continued employment requirements. The number of shares ultimately delivered can differ substantially from the target award.

For planning purposes, consider a lower payout as well as the target and a stronger result. Building a major spending or retirement decision around the maximum possible award can leave a significant gap if performance falls short.

An acquisition or other change in control may also affect the award. Review those provisions before treating a projected payout as money you can count on.

## Private Company Shares and IPOs: Value Is Different From Available Cash

Private company shares can have substantial estimated value without providing a ready source of cash. Tender offers and secondary sales may offer opportunities to sell, but eligibility, company approval, and transaction limits can restrict participation.

An IPO also does not guarantee immediate access to cash. Employees may face lock-up agreements and other resale restrictions after public trading begins, as the SEC explains in its [IPO investor bulletin](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-17).

Even after a lock-up ends, company trading windows, blackout periods, and securities-law restrictions may limit when you can sell. An open trading window does not override restrictions on trading while aware of material nonpublic information.

For some executives and employees, a Rule 10b5-1 trading plan may help establish sales in advance. A properly structured and operated plan can provide an affirmative defense to certain insider-trading claims, subject to requirements including good faith and applicable cooling-off periods. It does not override every company or legal restriction. Discuss any proposed plan with company counsel before proceeding. The SEC outlines the requirements in its [Rule 10b5-1 guidance](https://www.sec.gov/resources-small-businesses/small-business-compliance-guides/insider-trading-arrangements-and-related-disclosures).

Before relying on equity proceeds, establish when you can actually sell, how much you can sell, and what taxes or exercise costs must be funded first. Keep near-term spending commitments separate from proceeds whose timing remains uncertain.

Diversification Is Part of the Decision

When you work for the company whose shares you own, your salary, future awards, and accumulated wealth may all depend on the same business.

Confidence in your employer is understandable. Still, it helps to decide how much company exposure your financial plan can support—and what a substantial decline would mean for your goals.

Taxes matter, but they are only one part of that assessment. Waiting for a more favorable tax result can be costly if the stock declines in the meantime. Federal tax benefits also need to be evaluated alongside state taxes; [New Jersey does not distinguish between short-term and long-term capital gains](https://www.nj.gov/treasury/taxation/njit9.shtml).

Start by defining how much company-stock risk you want to retain and when you need the proceeds. Then evaluate the available ways to reach that position.

Bring the Decisions Into One Plan

Before a major exercise, vesting date, departure, or liquidity event, work through five questions:

What do I own? Confirm award types, quantities, exercise prices, and vesting terms.
Which deadlines matter? Identify expiration dates, election deadlines, and post-employment provisions.
What could I owe? Estimate the full tax liability and compare it with expected withholding.
Where will the cash come from? Identify funds for exercise costs and taxes before assuming shares can be sold.
How much company stock fits my goals? Consider your existing investments, future awards, and dependence on your employer for income.

When shares are sold, reconcile the brokerage cost basis with your stock-plan records and tax preparer. Amounts already recognized as compensation may require a basis adjustment to avoid overstating the taxable gain. [IRS Publication 525](https://www.irs.gov/publications/p525) explains this reporting issue for stock options.

At Beacon Hill Private Wealth, we help clients evaluate financial decisions within a coordinated wealth management plan, including tax considerations in collaboration with their tax professionals. Equity compensation benefits from that same approach: understanding how an award affects your cash flow, investments, and longer-term priorities before a deadline forces the decision.

Thinking about how this applies to you?

If an upcoming equity event could materially change your finances, we are happy to discuss how it fits into your broader plan.

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Beacon Hill Private Wealth is an independent, fee-only fiduciary investment advisory firm. Founder Tom Geoghegan provides coordinated wealth management that integrates evidence-based investing with tax-aware financial planning, helping professionals and families navigate complex financial decisions over time.

This article is for informational and educational purposes only and should not be construed as investment, tax, legal, or accounting advice. Any decisions regarding equity compensation, stock options, RSUs, taxes, or estate planning should be evaluated based on your individual circumstances and in consultation with your tax and legal advisors. Information is as of October 2026, and tax laws and regulations are subject to change. Examples are hypothetical and for illustration only. Investing involves risk, including the possible loss of principal, and no strategy can guarantee returns or eliminate risk. Diversification does not guarantee a profit or protect against a loss. The strategies described are not suitable for every investor, may be available only to investors who meet eligibility requirements, and may be offered only through third parties. Mentioning a strategy is not a recommendation. Beacon Hill Private Wealth LLC is a Registered Investment Adviser. Registration as an Adviser does not imply a certain level of skill or training.