Making sense of your employee stock options is tough. A quick Google search won’t help.
Try searching “stock options,” and you’ll get results about trading calls and puts—great if you’re a day trader, but not useful if you’re just trying to figure out your compensation package. Even narrowing it down to “employee stock options” leads to general advice that doesn’t consider the unique way stock options work in tech.
Stock options aren’t just a bonus—they’re a big part of how tech employees are paid. That’s why understanding how they work (and how they’re taxed) is so important. And taxes on stock options? They can get complicated (and expensive) fast.
So, do you need a CPA for stock option taxes?
Let’s break it down.
Why Are Stock Option Taxes So Complicated?
When your salary hits your bank account, taxes are already taken out. Stock options work differently.
The IRS sees them as income, but when and how they’re taxed depends on the type of options you have, when you exercise them, and when (or if) you sell.
Here’s where things get messy:
- Different types of stock options have different tax rules.
Incentive Stock Options (ISOs) and Nonqualified Stock Options (NQSOs) don’t follow the same tax treatment. ISOs come with alternative minimum tax (AMT) risks, while NQSOs are taxed as ordinary income when exercised. - Restricted Stock Units (RSUs) are taxed at vesting.
Unlike options, RSUs don’t require exercise, but you still owe taxes when they vest—whether you sell or not. - The IRS might double-tax you.
Many tech employees get taxed twice because of reporting errors. If your income appears on both your W-2 and a 1099-B but isn’t adjusted correctly, you could overpay by thousands (or even hundreds of thousands) of dollars. - Timing matters.
The tax bill for exercising early at a startup looks different from selling shares after an IPO. Capital gains tax rates, AMT, and company policies all play a role.
If this sounds confusing, that’s because it is. And mistakes can be expensive.
What Can a CPA Do for You?
If you’re working in tech and have stock options, a CPA who specializes in equity compensation can help in three key ways:
1. Prevent Double Taxation
We’ve seen cases where employees almost paid hundreds of thousands of dollars in unnecessary taxes. This happens when stock sales are reported on multiple forms (like W-2s and 1099-Bs) but aren’t adjusted properly.
A CPA can review your tax documents, identify discrepancies, and make sure you don’t overpay.
2. Plan for Tax Bills Before They Hit
Stock options don’t work like your paycheck—there’s no automatic withholding that covers everything. Many companies withhold a flat 22% on RSUs, even though your actual tax rate might be 35% or more. Without proper planning, you could get a surprise bill come April.
A CPA can help you estimate your taxes, set aside enough, and even make estimated payments throughout the year.
3. Optimize Your Stock Option Strategy
A CPA doesn’t just help with taxes—they can help you make smarter financial decisions.
Should you exercise early? Should you sell right away or hold for long-term gains? Do you need an 83(b) election? The right strategy can save you tens (or hundreds) of thousands of dollars over time.
But Do You Really Need a CPA?
If your stock options are a small part of your compensation, you might be fine with basic tax prep. But if your equity makes up a large portion of your income—or if you’ve exercised, sold, or have an IPO coming up—a CPA could save you a significant amount of money. In the long run, it could come down to millions.
Here’s when you should consider working with one:
- You exercised or sold stock options this year.
- Your company is going public, and you’re not sure what that means for your taxes.
- You received an unexpected tax bill (or refund) and don’t know why.
- Your RSUs are vesting, and you want to avoid an underpayment penalty.
- You’re not sure if you owe AMT.
Don’t Let Stock Option Taxes Cost You Thousands
Stock options are one of the biggest wealth-building opportunities for tech professionals—but only if you handle them right. The tax rules are complicated, and mistakes can be expensive.
A wrong move—like missing an AMT credit, getting double-taxed, or underpaying throughout the year—could mean overpaying the IRS by tens or even hundreds of thousands of dollars.
Here at KB Financial Advisors, we’ve helped countless tech employees avoid these costly mistakes and build a smart tax strategy for their stock options. Whether you’re prepping for an IPO, planning an exercise-and-hold strategy, or just trying to figure out your next move, we can help.
Book a call today and let’s make sure your stock options work for you—not against you. Simply use the calendar below to get started.
Until next time!
