Your source for data-driven advice on investing and personal finance. See how Wealthfront can help you reach your financial goals. This is likely true if you reported income in from stock option exercises, restricted stock vesting, or sales of shares. In general, there are four different federally imposed taxes that may impact your employee equity compensation:. Ordinary income tax refers to the tax charged on your basic income. This type of tax is as old as the IRS. These rates apply to taxable income only, which means you first get to reduce your gross income for itemized or standard deductions and then a personal exemption.

Tax Foundation

Capital gains tax applies to gains from the sale of capital assets investments. While the definition of a capital asset can get a little complex, for our purposes it applies to all types of stock held in private or public companies. Congress chose to charge a lower tax rate on long-term gains to encourage investment and capital flows to business, which helps our economy. Excess capital losses can be carried forward and applied to future tax years.

Few topics are less understood than the alternative minimum tax AMT. This is true for many accountants as well as laypersons. Our present AMT system was enacted in and basically operates to make sure that higher income earners pay at least a minimum level of tax.

The confusion over it lies in how the tax is computed and who should expect to pay it. The AMT computation starts with your taxable income before exemptions from your regular tax method and then makes a series of adjustments to arrive at your alternative minimum taxable income.

The most common adjustments include adding back any taxes including state income taxes and property taxes that you deducted for regular tax and adding in the spread income from the exercise of incentive stock options ISOs.

The resulting AMT income should be much higher than your regular taxable income.

Make a Payment – California State Board of Equalization

It takes knowledge and experience to estimate whether a taxpayer will have to pay AMT because it depends on not only the level of income, but the type of income, as well as the mix of deductions. The net investment income tax was passed under the Affordable Care Act and came into existence for the tax year.

Commonly referred to as an Obamacare tax, it assesses a 3.

This new tax has many nuances and can get quite complicated. For the purposes of this summary, the tax may apply to capital gains upon the sale of stock if you are already over the modified AGI threshold.

While complex in their own right, California state taxes are much simpler than federal taxes. You can expect to pay from 9. Most taxpayers will not find themselves in California AMT unless they exercise and hold incentive stock options during the year more on this in Part 2 of this series.

Toby Johnston CPA, CFP is a partner with the Moss Adams LLP Wealth Services Practice. The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice or opinion provided by Moss Adams LLP.

This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by professionals, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented.

Moss Adams LLP assumes no obligation to provide notifications of changes in tax laws or other factors that could affect the information provided. Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction.

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Wealthfront Knowledge Center Your source for data-driven advice on investing and personal finance. Tags AMT , capital gains , employee compensation , hypotheticals , income tax , net investment taxes , personal taxes , RSUs , scenarios , stock options. About the author Toby Johnston CPA, CFP is a partner with the Moss Adams LLP Wealth Services Practice.

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