RSU, ESPP & ISO tax preparation and planning

Equity compensation is a regular part of our individual tax practice. In a recent year, our CPA personally prepared or reviewed approximately 70 individual returns involving equity compensation: about 50 with RSUs, 20 with ISOs and AMT, 15 with NSO or ESPP dispositions, and 10 with restricted stock and Section 83(b) elections. These categories overlap because a single return can involve several award types.

A client may have quarterly RSU vesting at a public company, options from a former startup, and ESPP sales with different holding periods in the same year. We identify each instrument, build its transaction history, and connect its reporting with the rest of the return. The company name alone does not tell us how an award should be taxed.

What our review includes

• Inventory grants, vesting, purchases, exercises, sales, and any Section 83(b) or 83(i) elections.
• Classify each award using its actual terms and reconcile Forms 3921 and 3922 when applicable.
• Document the instruments and services included in the engagement, then complete a second review before filing.

We build a lot-by-lot schedule that connects compensation already reported as wages with the shares you sold. A broker’s Form 1099-B may show a zero or incomplete cost basis for employee shares. Accepting that figure without checking the stock-plan records can cause compensation already taxed as wages to be included again in the reported gain.

We compare your W-2, brokerage supplemental statements, and vesting, exercise, purchase, and sale confirmations. W-2 code V can help identify nonstatutory option income; other employer disclosures vary. We also distinguish shares sold or withheld to cover taxes from shares you continued to hold.

The correction method depends on whether the broker reported basis to the IRS. We use the appropriate Form 8949 treatment for each transaction, rather than applying the same adjustment to every lot.

What our review includes

• Tie compensation income and share basis back to supporting records and resolve material discrepancies before filing.
• Check potential wash sales across relevant accounts and acquisitions, including stock-plan activity where applicable.
• Review California reporting and sourcing separately when residency or work location changed.

IRS: Form 8949 basis corrections ↗

Yes. An incentive stock option exercise can affect alternative minimum tax (AMT) even if you have not sold the shares. When ISO shares are held beyond the exercise year, the spread between the exercise price and the shares’ value at exercise generally enters the AMT calculation. We evaluate the exercise, any sale, and the rest of your tax situation together.

AMT attributable to eligible deferral items may generate a minimum tax credit for a later year. Recovery depends on future tax calculations and may take multiple years; selling the shares does not automatically recover the entire credit. We track the federal credit on Form 8801 and applicable California credits separately.

We also maintain regular-tax and AMT basis records. Different basis amounts can produce different gains when the shares are sold. Holding periods, same-year dispositions, prior credits, and the tax rules for the relevant year all matter.

What our review includes

• Reconcile Form 3921, exercise confirmations, and disposition dates.
• Calculate federal Form 6251 and California Schedule P when required.
• Maintain credit carryforwards, dual basis records, and the ISO holding-period history.

IRS: minimum tax credit rules ↗

A restricted stock award transfers actual shares subject to restrictions such as forfeiture. An RSU is generally a promise to deliver shares or cash later. That distinction matters: an unfulfilled RSU does not itself qualify for a Section 83(b) election. Shares received through an early option exercise may require a separate restricted-stock analysis.

For eligible restricted stock, a Section 83(b) election generally includes the value at transfer, less the amount paid, in income then instead of waiting for vesting. The election deadline is generally 30 days after the property transfer. Contact us before the transfer whenever possible so the decision and filing requirements can be reviewed in time.

An election is not automatically the best choice. We consider the value and amount paid, vesting and forfeiture terms, liquidity, and the possibility that the shares lose value. We verify the election and filing evidence, then track basis and the applicable holding period from the underlying stock transaction.

For eligible private-company arrangements, we can also assess Section 83(i), a separate election that may defer certain income for up to five years. It has specific company and employee eligibility requirements and is not available for every private-company award.

IRS: Section 83(b) election form and instructions ↗

Your equity compensation return is prepared and reviewed in-house. Our CPA personally prepares or reviews the work, completes a second full review, and signs as the paid preparer. Return preparation is not outsourced.

The review covers award classification, compensation and basis reconciliation, applicable AMT and credit schedules, election records, and potential wash sales. Technology supports data capture and calculations; the classification, reconciliation decisions, and final review remain with the CPA.

Before filing, we walk through the return with you, explain significant items, and resolve questions. You then provide the required federal and state e-file authorizations. The engagement letter identifies the work included and who is responsible for it.

Yes. Planning is most useful while you still have choices. Our proprietary model connects each share lot with your individual tax situation and updates the estimated sale impact as the scenario price changes. You can compare a price you are considering with other prices and lots, then see how the decision fits with activity already completed and plans for the rest of the year.

A planning engagement can compare exercise timing, the number of shares, potential sales, holding periods, withholding, and cash needs. Depending on your circumstances, scenarios may include exercising in one year or across two years, selling some shares in the exercise year, or waiting for a liquidity event.

The planning deliverable is a written memo documenting the scenarios, assumptions, and recommended tax-planning action before the contemplated transaction. Return preparation later uses the transactions that actually occurred and the final records. Modeled estimates help inform a decision; they do not predict share prices or guarantee tax savings.

Return preparation and advance planning are separate services. Our typical fee ranges are below. Your engagement letter confirms the scope and fee based on the instruments involved, transaction complexity, and the states requiring returns.

Equity return preparation

$1,500–$2,500

Individual tax return work; scope depends on award types, transactions, and states.

Advance planning

$2,500–$4,500

Scenario analysis and a written planning memo before an exercise or sale.

Diagnostic review

$500–$750

A written assessment of reporting and planning opportunities. Credited toward the engagement if you proceed.

Start with a conversation about your awards and any upcoming exercise, vesting, or sale. A diagnostic review can provide a written assessment of prior reporting, items that need a closer look, and planning opportunities before your next transaction.

Useful starting records include your prior-year return; grant and award agreements; vesting, purchase, and exercise confirmations; W-2s and brokerage statements with supplemental basis details; and Forms 3921 or 3922, if issued. Include any Section 83(b) election and filing evidence, AMT credit history, and current income and withholding information.

If you moved or worked in different states, include those dates and work locations. We will confirm the records needed and arrange secure document sharing. New clients should contact us for instructions before sending financial documents.