As our last post in the Veracity Capital Knowledge Series: Beyond Taxes, we’re taking a closer look at executive compensation—an area that offers significant opportunity, but also complexity.

Executive compensation often includes more than just a paycheck and a bonus. From stock options to deferred compensation, these benefits can be powerful tools for long-term wealth building—if you know how to make the most of them.

The challenge? Each component of your compensation package comes with its own set of tax rules, timelines, and strategic considerations. Without a clear plan, it’s easy to overlook opportunities or face an unexpected tax bill down the road.

In this post, we break down four common types of executive compensation and share practical tax insights to help you make more informed, confident decisions.

1. Stock Options: ISOs vs. NSOs

Stock options give you the opportunity to buy company stock at a set price, and they can offer significant upside if the company performs well. Incentive Stock Options (ISOs) are often the most tax-advantaged—but also the most complicated. When handled correctly, ISOs can be taxed at long-term capital gains rates instead of ordinary income, but they may trigger the Alternative Minimum Tax (AMT), which can surprise many executives. Timing is everything here—many people find that exercising during years five or six of a typical 10-year option life provides a good balance of risk and reward.

Non-Qualified Stock Options (NSOs) are a bit simpler but less favorable from a tax standpoint. You’ll owe ordinary income tax on the difference between the exercise price and the market value when you exercise, and then pay capital gains taxes on any additional appreciation once you sell.

Want a deeper dive into your stock options? Start here.

2. Restricted Stock Units (RSUs)

RSUs are among the most common forms of equity compensation, and they’re relatively straightforward. When your RSUs vest, you’ll pay ordinary income tax on the fair market value of the shares. From that point on, any gain is treated as a capital gain. That means your tax burden is locked in at vesting—even if you choose to hold the shares.

Because of this, many people sell RSUs immediately at vesting to cover the tax bill and diversify their investments. One watch-out: companies don’t always withhold enough taxes, so it’s a good idea to double-check with your CPA to avoid underpayment penalties.

Here’s how RSUs and other equity tools can fit into your overall financial plan.

3. Employee Stock Purchase Plans (ESPPs)

If your company offers an ESPP, it can be a great benefit—especially if you’re able to take full advantage of the discount. Qualified ESPPs allow you to purchase company stock at a discount (often up to 15%) and potentially receive long-term capital gains treatment if you meet the holding period requirements. Non-qualified ESPPs are more flexible but come with less favorable tax treatment, taxing the discount as ordinary income at the time of purchase.

The key here is to manage both your cash flow and the calendar. Participating in an ESPP can be a smart move if you can afford it, and holding onto the shares long enough to qualify for lower tax rates can make a real difference.

4. Deferred Compensation Plans

Deferred compensation plans let you delay a portion of your income until a future date, typically retirement. These plans can be highly effective if you’re in a high tax bracket now and expect to be in a lower one later. Income is taxed when received, not when earned—but these plans are governed by strict IRS rules (like Section 409A), and getting the timing wrong can result in penalties.

It’s also important to evaluate the financial stability of your employer, since deferred compensation is generally an unsecured promise. If the company goes under, that money may be at risk.

See how we helped a corporate executive navigate these complexities in this case study.

In addition to the core components of your compensation package, there are a few lesser-known strategies that may be worth exploring with your advisor. These can offer meaningful advantages—especially when integrated into a broader tax and wealth planning approach.

One example is the 83(b) election, which lets recipients of restricted stock pay taxes at the time of grant rather than at vesting. This can result in lower taxes if the stock appreciates significantly—but it comes with risks and is best evaluated with a professional.

Also, don’t forget about safe harbor withholding rules to avoid underpayment penalties. In general, aim to pay at least 90% of your current year’s tax liability, or 100% of last year’s (110% if your income exceeds $150,000).

We understand that navigating your options can be overwhelming—but you don’t have to figure it out alone. Our team is here to guide you. Have questions or want to explore how these fits into your plan? Email us at [email protected] or schedule an introductory meeting here.

Investment advisory services are offered through Veracity Capital, LLC, a registered investment adviser. Insurance products and services are offered through Veracity Capital Risk Management, LLC, an affiliated insurance agency. Tax preparation and planning services are offered through Veracity Capital Tax Advisors, an affiliated company.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.