Equity Planning and Management

Equity can be the most valuable part of a founder's or employee's pay, and its tax rules include deadlines that cannot be fixed afterward. Equity planning means looking at how shares and options are granted, when they vest, what you owe at each step, and what you keep when you sell. We work with founders, early employees and executives in Naperville, Aurora, Chicagoland and across the country, and coordinate with your attorney and valuation specialist on the tax side.

What the service covers

• Founder equity. Share issuance, vesting schedules, and the tax effect of how founders buy in.
• Cap tables. A tax-focused ledger of who holds what, when it was issued, what was paid and the holding period, kept consistent with the legal cap table your attorney maintains.
• Option pools and grants. The tax effect of plan design, and tracking of grants, vesting and exercises.
• Section 83(b) elections. Preparing, delivering and documenting the election.
• Employee equity. ISOs, NSOs, RSUs and employee stock purchase plans, including exercise planning and withholding.
• QSBS (Section 1202). Qualifying, tracking and documenting stock that may be partly or fully excluded from tax on sale.
• Secondary sales and exits. Modeling the tax of selling some shares before a company sale.
• Cross-border equity, such as shares or options in Indian companies. See Indian business ownership forms.

The core rules

Restricted stock and the 83(b) election

When shares are subject to vesting, the default is that you are taxed as they vest, on their value at that time. An 83(b) election instead taxes you at transfer, on the value minus what you paid. For founders buying shares at formation, that value is often small. The IRS requires the election to be filed no later than 30 days after the property is transferred, using a signed written statement or Form 15620. A copy goes to the company. It cannot be made for a stock option, and it generally cannot be revoked without IRS consent. If the shares are later forfeited, the tax paid on the election is generally not recovered. See Section 83(b) election.

Stock options

An incentive stock option (ISO) generally creates no regular tax at grant or exercise, but exercise can trigger alternative minimum tax. If you hold the shares until the later of one year after exercise and two years after grant, a gain is generally capital gain. Selling sooner produces ordinary income up to the spread at exercise. Employers report exercises on Form 3921. A nonstatutory option (NSO), in the usual case, is taxed at exercise on the shares' value minus the price paid, and for an employee that amount is wages. Employee stock purchase plans report on Form 3922. See ISO, NSO and RSU taxes and alternative minimum tax.

Restricted stock units

RSUs are generally taxed as compensation when shares are delivered at vesting. Employers commonly sell or withhold shares to cover tax. Federal withholding on supplemental wages is a flat 22% for 2026, or 37% on the part above $1 million in the year, which may be lower than your actual rate, so a large vest can leave a balance due.

Qualified small business stock

Section 1202 can exclude some or all of the gain from selling qualified small business stock, which generally means original-issue stock of a domestic C corporation that meets asset and active business tests. For stock issued after July 4, 2025, the exclusion is 50% after 3 years, 75% after 4 years and 100% after 5 years, the per-issuer gain cap starts at $15,000,000 (the statute also contains a basis-based alternative, so the exact limit depends on your facts), and the corporation's gross assets may not exceed $75,000,000 when the stock is issued. Stock issued on or before July 4, 2025 generally remains under the earlier rules. The part of a gain that is not excluded can be taxed at up to 28% (2025 rates). States may not follow the federal exclusion. Records of the issue date, the company's asset values and what the stock was issued for are essential. See QSBS.

Who does what

Grant agreements, stock purchase agreements, plan documents and the legal cap table are prepared by your attorney. A 409A valuation of common stock is an appraisal by an independent valuation specialist, and we do not perform it. We review the tax effect of the structure, calculate the tax, coordinate with payroll on withholding and report the results on your return. We are a CPA firm and do not give legal advice.

How an engagement works

1. Consultation on the equity you hold or will receive and pending decisions, such as a hire, a financing or an exercise.
2. Written engagement agreement covering scope, deliverables, coordination with your attorney and how fees are determined, before any work begins.
3. Document collection: grant and purchase agreements, vesting schedules, cap table, option statements, Forms 3921 and W-2, and any 409A report.
4. Analysis of the tax cost and cash needs of each choice, such as exercising now versus later.
5. Filing and delivery: elections, returns and written recommendations with dates.
6. Follow-up on vesting dates, exercise windows and the QSBS holding period.

Common problems we fix

• Missed 83(b) deadline for founder shares, so tax is due as the shares vest at a higher value.
• ISO exercises with no AMT check, leading to a surprise tax bill.
• RSU vests with too little withholding.
• Cap table entries that disagree with the tax records, such as issue dates or share counts.
• Equity in an S corporation that may create a second class of stock. See S corporation taxes.
• QSBS paperwork gaps that make the exclusion hard to prove later.

How we can help

We are the tax and accounting resource for the people around the table: you, your attorney, your valuation specialist and your payroll provider. We also help founders choose a starting structure through business formation. We meet in person in Naperville and Aurora and work remotely with clients elsewhere. Contact us before you sign anything that issues equity.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.