The Tax Stuff Nobody Wants to Think About (But Costs You Real Money)

June 2026 · 12 min read

Most people treat equity comp taxes as a problem to deal with in April. That's already about 8 months too late. The decisions that actually determine your tax bill were made when those RSUs vested, when you sold those ESPP shares, when you exercised those ISOs.

Here's what you actually need to know about each type of equity comp tax — not the textbook version, but the version that keeps money in your pocket.

The rate table that matters

For context — because you need to know what bracket you're fighting against:

ESPP taxes: the qualifying vs disqualifying decision

This is the one where the math is actually worth running. Here's a concrete example so you can see exactly what's at stake:

My rule of thumb: if the tax savings are less than 10% of the stock value you'd be holding, sell immediately. In this example, $6,650 / $75,000 = 8.9% — borderline. If the ratio is 5% or less, don't even think about it. Sell.

RSU taxes: the withholding gap

RSUs are taxed as ordinary income on the vest date. Your employer withholds at 22% federal (statutory rate for supplemental wages). The problem is that many tech employees are in the 32-37% bracket, creating a gap.

How big a gap? Let's say you have $100K of RSUs vest in a year. The correct tax (32% bracket + CA state) is roughly $41K. Your employer withheld $22K federal + state. You owe about $19K in April that you may not have budgeted for.

Solutions, in order of simplicity:

1. Safe harbor rule. If your current-year withholding exceeds 110% of last year's total tax (100% if AGI under $150K), you won't get penalized even if you owe more. This is the approach I use — I just budget for a big check in April instead of trying to get withholding exactly right.
2. Increase W-4 withholding. Add an extra amount on line 4(c). Takes 5 minutes in your payroll system.
3. Estimated quarterly payments. More work but more precise. Due dates: April 15, June 15, September 15, January 15.

ISO & AMT: the dangerous one

We covered the mechanics in the Stock Options guide, so here I'll focus on the practical strategies for managing AMT exposure.

Strategy 1: spread across tax years. Instead of exercising 20,000 ISOs in December, exercise 10,000 in December and 10,000 in January. Two tax years, two AMT calculations, potentially keeping you under the exemption threshold both years.

Strategy 2: the January exercise loophole. If you exercise ISOs in January, you have until December 31 to decide whether to sell the shares. If you sell in the same calendar year in a disqualifying disposition, the AMT adjustment is undone for that year. This gives you an 11-month window to evaluate the stock and your tax situation before committing.

Strategy 3: AMT credit recovery. AMT paid on ISO exercise generates a Minimum Tax Credit that carries forward. In future years where your regular tax exceeds AMT, you can use the credit. It's not wasted — but it is an interest-free loan to the government that you may not recover for years.

Tax-loss harvesting with equity comp

If you hold vested shares that are underwater (worth less than the vest price), selling them generates a capital loss. You can use this loss to offset capital gains and up to $3,000 of ordinary income per year.

The trap: wash sale rule. If you sell for a loss and then buy the same stock within 30 days (before or after), the loss is disallowed. This is problematic because your ESPP might buy more shares during that window, or RSUs might vest. You need to map out your equity calendar before executing a tax-loss sale.

One workaround: sell the company stock, immediately buy a sector ETF (e.g., sell Meta, buy QQQ). The ETF is not "substantially identical" to the individual stock, so no wash sale. You stay exposed to the sector while booking the tax loss.

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