How to get more from your RSU compensation

More than 50% of your compensation is paid in stock — don’t handle it right and you can become poor overnight.

Tax tricks no one told you about

Most tech employees don’t get sufficient information on their tax obligations. The result? A big unpleasant surprise from the IRS. To avoid writing a big check on tax filing day it is important to understand how your redemptions are withheld and taxed.

How to plan for taxes

A little known fact: Most companies treat RSUs as supplemental income. This leads to them withholding much less tax and often leads to tech employees owing substantial amounts to the IRS.

First — check if you’re likely to owe taxes. Here’s a rough way to calculate that on your own:

Look at your year-to-date income from all sources. You can find your job income on the bottom of your latest pay stub. If filing jointly, include your partner’s income too.

See where your year to date income falls within the IRS income tax brackets.

Multiply the tax rate from #2 by the gross value of your vested RSUs. Subtract the amount that was already withheld by your employer. Do the same for state taxes.

Next — plan for any amount you may owe:

Withhold more from your check or save cash

You can reach out to your HR representative to change your tax deductions. It will only affect your withholdings going forward so you may still owe taxes for the beginning of the year.

Maximize tax deferred contributions

If you are holding RSUs to delay paying taxes on the gains, the proceeds from the sale can be used to max out tax-deferred accounts, like a 401k, and offset your tax bill (in addition to diversifying your investment portfolio).

Donor Advised Funds

If you want to offset a large portion of RSU taxes — you can do that by donating to charity. DAFs, or donor advised funds, let you open a fund with a set amount you want to donate over several years. The caveat? You can deduct it from taxes in year 1 if you want to. There are many startups in this space like Daffy, that can make this a simple process.

Deduction Bunching

Deduction bunching is squeezing as many deductions as possible into one tax year. It's done to minimize taxes in that year.

If you have a large tranche of RSUs vesting in any given year, you should consider bunching deductions to offset some of this income. You can use deductions like mortgage interest, medical expenses or charitable deductions.

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1  The material in this email does not provide tax, legal, investment, or accounting advice. This is not an offer to buy or sell any security or to participate in any investment strategy. The strategies and/or investments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.