CPA for Executives with Stock Compensation in Los Angeles
MangoBooks prepares returns and plans taxes for executives and employees in Los Angeles who are paid partly in company stock through restricted stock units, stock options or an employee stock purchase plan. Stock compensation creates income at vesting, exercise and sale, and withholding can differ from the tax that is due. We prepare the federal and California returns, match brokerage forms to the income already on Form W-2, and plan estimated payments.
Situations We Handle
Restricted stock units (RSUs). RSUs are generally not taxed at grant; when they vest, the value of the shares is ordinary income and is included on Form W-2.
Nonqualified stock options (NSOs). For most NSOs there is no tax at grant; at exercise, the value of the shares minus the amount paid is income, reported on Form W-2 for an employee.
Incentive stock options (ISOs). Exercising an ISO creates no regular income tax, but the difference between the stock's value and the option price is an adjustment for the alternative minimum tax unless the shares are sold in the same year. The employer reports the exercise on Form 3921. If the shares are sold before the later of 2 years after grant and 1 year after exercise, some or all of the gain is ordinary income.
Employee stock purchase plans (ESPP). The employer issues Form 3922 for ESPP shares. It shows the dates and values used to divide the result of a sale between ordinary income and capital gain.
Cost basis on Form 1099-B. For options granted on or after January 1, 2014, the basis on Form 1099-B does not include the amount already taxed as compensation, and the adjustment is made on Form 8949.
Withholding gaps. Federal withholding on supplemental wages can be figured at a flat 22 percent, and supplemental wages above $1 million in a calendar year are withheld at 37 percent. California withholding on bonuses and stock options can be figured at a flat 10.23 percent. When the tax on vested or exercised stock is higher than these rates, the rest is due through estimated payments or with the return.
Estimated payments. Federal estimated payments are due April 15, June 15 and September 15 of the tax year and January 15 of the following year, moved to the next business day when a date falls on a weekend or holiday. The federal penalty is generally avoided by paying at least 90 percent of this year's tax or 100 percent of last year's, whichever is smaller; the prior-year figure rises to 110 percent when prior-year AGI was above $150,000 ($75,000 if married filing separately). California asks for 30 percent of the year's estimate by April 15, 40 percent by June 15, nothing in September and 30 percent by January 15.
California Treatment
- High incomes. With California AGI of $1,000,000 or more ($500,000 if married filing separately), estimated payments must be based on 90 percent of the current year's tax.
- Behavioral Health Services Tax. California adds 1 percent on taxable income above $1,000,000.
- Capital gains. California has no lower rate for capital gains and taxes them as ordinary income.
- California AMT. When ISOs are exercised, the difference between the stock's value and the option price is also an adjustment for California alternative minimum tax in the year of exercise, unless the shares are sold that same year.
- Moving into or out of California. A part-year resident is taxed on all income received while a resident and on California-source income while a nonresident. Stock income recognized while a California resident is taxed by California in full; income recognized after a move away is taxed to the extent the work was done in California. For options and restricted stock, one method the FTB describes allocates the income by California workdays between grant and exercise or vesting.
Services Involved
- Individual Tax Preparation, including multi-state years
- Tax Planning, including estimated payments
Frequently Asked Questions
Why is tax still owed when tax was withheld on vested RSUs?
Federal withholding on supplemental wages can be figured at a flat 22 percent, and California withholding on bonuses and stock options can be figured at a flat 10.23 percent. When the tax on the vested shares is higher than these flat rates, the difference is due through estimated payments or with the return.
Are ISOs taxed at exercise?
There is no regular income tax at exercise. The difference between the stock's value and the option price is an adjustment for the alternative minimum tax, federal and California, unless the shares are sold in the same year.
Why can Form 1099-B show a larger gain than expected?
For options granted on or after January 1, 2014, the basis on Form 1099-B does not include the amount already taxed as compensation. The basis is adjusted on Form 8949 so the same income is not reported again as gain.
Which state taxes stock income after a move out of or into California?
Income from options exercised or stock that vests while the person is a California resident is taxed by California in full. After a move out of California, the income is taxed to the extent the work was done in California. For options and restricted stock, one method the FTB describes allocates the income by California workdays between grant and exercise or vesting.
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