What To Do With Company Stock
(And Why Taxes Could Make or Break Your Gains)
If you’re receiving company stock as part of your compensation, congratulations — you’re participating in a benefit that can supercharge your long-term wealth. But that potential can go untapped or even become a burden if you don’t understand what kind of stock you have, when it vests, and how taxes play into the equation.
In this week’s episode of CAPitalize Your Finances, we break down exactly how to approach your company stock with confidence — so you can make smart moves with your money, rather than reacting in confusion come tax season.
Types of Company Stock (And What They Mean for You)
Not all company stock is created equal. Here’s a breakdown of the most common types:
Restricted Stock Units (RSUs):
RSUs are granted to you and vest over time. Once vested, they’re treated as ordinary income and taxed accordingly. Many people are surprised when a big tax bill shows up the same year their RSUs vest — make sure you’re setting aside cash to cover that.Employee Stock Purchase Plans (ESPPs):
ESPPs let you buy company shares at a discount, often through payroll deductions. Depending on how long you hold the stock, you may qualify for more favorable long-term capital gains treatment.Stock Options (ISOs and NSOs):
Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) have different tax treatments. ISOs can qualify for capital gains if you meet certain holding requirements. NSOs are generally taxed as ordinary income upon exercise.Employee Stock Ownership Plans (ESOPs):
ESOPs are retirement plans that invest primarily in the employer’s stock. Distributions are usually taxed as ordinary income, but there are some strategic rollovers available depending on how your plan is structured.
Tax Strategy: Timing Is Everything
This is where the magic (and the mistakes) often happen.
RSUs are taxed when they vest, not when you sell them. Some companies automatically sell a portion to cover taxes, but others don’t — leaving you on the hook.
With ESPPs, holding your shares for at least one year after purchase and two years after the offering period can result in capital gains treatment on most of the profit.
ISOs can trigger the Alternative Minimum Tax (AMT), so planning with a tax professional is crucial before exercising a large batch.
💡 Pro Tip: Use a strategy called Tax Alpha — maximizing your after-tax return by pairing smart timing with your personal goals. Sometimes, paying taxes now can free you up for greater gains later.
When to Sell (And When to Hold)
There’s no one-size-fits-all answer, but here are a few factors to consider:
Diversification: If your net worth is too heavily tied to your company’s stock, you’re exposed to unnecessary risk. Don’t let loyalty cloud your portfolio decisions.
Liquidity Needs: Need cash for a big purchase or to pay down debt? Selling vested stock might make sense — just be aware of the tax consequences.
Market Timing: You can’t predict the market, but you can align sales with low-income years or charitable giving to reduce your tax liability.
What If You’re Leaving the Company?
If you’re switching jobs, pay close attention to:
Vesting Schedules: Unvested RSUs typically disappear when you leave.
Option Deadlines: You may only have 90 days to exercise options before they expire.
ESOP Rollovers: Work with a financial advisor to see if a rollover makes sense for your retirement plan.
🎙️ Want to learn how to maximize your equity and avoid painful tax surprises?
Tune into this week’s CAPitalize Your Finances episode where we dive deep into all of this — with real-world scenarios and actionable takeaways you won’t want to miss.