From Vesting to Value: Tax Strategies for RSUs and Options

David Freeze
Sep 29
2 min read

Person reviewing financial information on a laptop with coffee at desk — symbolizing planning and decision-making.

Equity compensation has become a powerful wealth-building tool for executives, key employees, and entrepreneurs. Stock options and restricted stock units (RSUs) can create significant opportunities—but also complex tax challenges. Without a clear strategy, it’s easy to face unnecessary taxes or miss opportunities for long-term planning.

Checklist: 5 things to do if you have RSUs vesting this year — check withholding, set aside cash, decide to hold or sell, diversify, talk to advisor.

At FREEZE | SULKOV & ASSOCIATES, we help clients navigate these complexities with proactive planning. Here are the key things to understand:

1. The Different Types of Equity Compensation

Restricted Stock Units (RSUs): The most common form of equity today. RSUs are taxed as ordinary income when they vest—whether you sell or not. That means large blocks of RSUs vesting in a single year can push you into much higher tax brackets.
Incentive Stock Options (ISOs): Can be more tax-advantaged, but subject to Alternative Minimum Tax (AMT) rules when exercised.
Non-Qualified Stock Options (NSOs): Taxed as ordinary income at exercise, but more flexible for companies to grant.

2. The Challenge with RSUs

Unlike options, RSUs don’t give you much flexibility on timing. You owe tax the moment they vest, even if you keep the shares. This can create:

Large income spikes that push you into higher tax brackets.
Withholding mismatches—employers often withhold at a flat rate that may not cover your actual liability.
Cash flow strain, since you may need to sell some shares to pay taxes.

Close-up of hand writing the word TAX in a notebook, representing tax planning and preparation.

Planning ahead ensures RSU income doesn’t derail the rest of your financial picture.

3. Timing and Strategy for Options

For stock options, timing is critical:

Exercising early may lock in long-term capital gains treatment.
Waiting may increase taxes, but lowers risk if the stock’s future value is uncertain.

Careful projections help balance risk, reward, and tax impact.

4. Managing Taxes and Cash Flow

For RSUs: We model vesting schedules against your total income to prevent surprises. Sometimes accelerating deductions (retirement contributions, charitable giving) can offset RSU spikes.
For ISOs: AMT can create a tax bill even without a sale. Projections are essential before exercising.
For NSOs: Ordinary income at exercise must be weighed against long-term growth potential.

5. Diversification and Risk Management

Holding company stock can create wealth—but it can also concentrate risk. Tax planning works best when paired with portfolio planning:

Selling some RSU shares at vest to diversify, even if it triggers tax, can protect your overall portfolio.
Using charitable strategies (like donor-advised funds) can offset gains.
For founders and early employees, advanced strategies like 83(b) elections or QSBS may apply.

Tablet showing colorful pie chart with percentages, symbolizing diversification and portfolio management.

6. Integrating Equity Into Your Bigger Picture

Equity compensation shouldn’t be viewed in isolation. Effective planning considers:

How RSU vesting or option exercise affects your marginal bracket.
Coordination with retirement savings, estate planning, and other compensation.
Aligning liquidity from shares with personal goals—home purchase, philanthropy, or retirement.

Final Thought

RSUs and stock options can be the most rewarding part of your compensation—but also the most complex. With proactive tax and financial planning, you can minimize surprises, capture opportunities, and turn equity into lasting wealth.

Ready to build a smarter plan for your RSUs and stock options?

Schedule a consultation with our team today