Case Study
Subject
Incentive Stock Options (ISO) and Non-Qualified Stock Options
(NQSO) in medical device company with a value of ~$13MM.
Objectives
- Develop tax efficient stock option plan.
- Reduce concentrated stock exposure.
- Raise liquidity for retirement planning.
- Formulate Income tax mitigation strategy.
Process
- L-Tax Team: Created formulas to simulate multiple exercise/sell strategies with tax liability and after-tax liquidity. These projections included analysis considering both current IRS Code and potential implications relating to Biden Administration's proposed code changes.
- Wealth Planning Team: Compiled all personal and financial information generating a comprehensive “base-line” financial plan LAWP used as the foundation for all strategy decisions.
- Estate and Trust Team: Assessed estate plan and advised on trust structure options related to charitable giving.
Strategy
- Recommended immediate exercise and sale of NQSOs which accounted for 5% of total options value due to stock volatility.
- Identified the amount of ISOs that could be exercised and sold without exposure to Alternative Minimum Tax (AMT). Recommended immediate execution of identified amount to further reduce portfolio risk.
- Resulting liquidity was used to initiate funding of diversified portfolio in accordance with financial plan.
- Recommended Donor Advised Fund (DAF) to address philanthropic interests and reduce income tax liability.
- Implemented Qualified Opportunity Zone investment to further mitigate income tax liability and exposure to net investment income tax (NIIT).
- Ongoing consultations: Regularly consult with client regarding regulatory and tax environment providing scenario analysis related to additional exercise and sales. Reconvene after every bulk sale to update figures and projections.
Results
Client has structure and process around decision-making for exercised options and remaining ISOs. Funding of retirement and financial plan has been initiated. Portfolio risk has been significantly reduced.
Estimated tax savings: $437,179.00
Client has structure and process around decision-making for exercised options and remaining ISOs. Funding of retirement and financial plan has been initiated. Portfolio risk has been significantly reduced.
Potential tax savings: $437,179.00
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We take a consulting approach to tax preparation and planning, ensuring regular client communication and a personalized understanding of our clients’ needs. We tirelessly research tax mitigation strategies and develop actionable recommendations for the benefit of our clients.