Equity compensation can be an incredible wealth-building tool, but it also creates some of the biggest tax risks for executives and high earners. RSUs, stock options, and deferred compensation all have different tax rules—and timing mistakes can lead to surprise tax bills, higher brackets, or missed opportunities. With smart planning, you can smooth income, avoid withholding gaps, and align your equity decisions with a long-term investment and tax strategy.

At Ascent Financial Group here in Richmond, Virginia, we help executives and professionals across Central Virginia navigate these decisions with clarity and confidence. Below, we break down how various forms of equity compensation are taxed—and how you can plan proactively.

How RSUs Are Taxed

Restricted Stock Units (RSUs) are the simplest type of equity compensation, but they still come with tax traps if you’re not prepared. RSUs are taxed as ordinary income the moment they vest, not when you sell the shares. Your employer will typically withhold taxes, but the default rate is often far too low for high earners.

For example, if you work in Richmond and receive $200,000 of vested RSUs, your company may withhold only 22%—even though your actual marginal bracket could be much higher. That leaves a major “withholding gap” and a painful surprise at tax time unless you plan ahead.

Once vested, any additional gain or loss between vesting and sale is treated as capital gains. Many executives choose to sell immediately to avoid concentration risk and convert those shares into a diversified portfolio.

Stock Options: Exercise Strategy Matters

Stock options—whether Incentive Stock Options (ISOs) or Nonqualified Stock Options (NSOs)—give you the right to buy shares at a set price. But exercising them triggers different tax rules depending on the type:

• NSOs: The difference between the strike price and the market price at exercise is taxed as ordinary income.
• ISOs: Exercise does not trigger ordinary income tax—but it may trigger the Alternative Minimum Tax (AMT), creating its own set of planning challenges.

This is where proactive planning becomes essential. The right exercise approach depends on market conditions, your cash flow, expected vesting schedule, and your broader tax picture. Small timing changes can dramatically shift your tax liability.

Managing Withholding Gaps and Avoiding Tax Surprises

One of the biggest risks with equity compensation is that withholding often isn’t enough. Companies typically apply a flat rate to RSUs and bonus-like income, which doesn’t account for tax brackets, Medicare surtaxes, or additional capital gains from later sales.

Executives across Central Virginia often find themselves under-withheld by tens of thousands of dollars because their employer’s system simply can’t keep up with their income complexity. To avoid this:

• Estimate your full-year tax picture early
• Use quarterly payments to close withholding gaps
• Pair equity events with deductions or strategic Roth conversions

This is where having an ongoing, year-round Tax Planning approach becomes crucial—not just a year-end scramble.

Diversification: When to Hold and When to Sell

Equity compensation often creates concentrated positions in your employer’s stock. While it can be emotionally difficult to sell shares you worked hard to earn, overexposure to a single company—especially the one that also pays your salary—can be risky.

A thoughtful diversification strategy considers:

• Your tax brackets year by year
• Upcoming vesting events
• Portfolio risk exposure
• Long-term investment goals

It’s not just about selling—it's about aligning sales with your broader investment and tax plan so you keep more of your gains.

Deferred Compensation: Smart Timing Makes All the Difference

Deferred compensation plans allow high earners to postpone income into future years—often a powerful tool for managing brackets. But these plans limit your flexibility, and elections made today can affect your income for decades.

At Ascent Financial Group, we help Richmond-area executives set up deferred compensation strategies that coordinate with equity vesting schedules, retirement timelines, and cash flow needs.

Coordinated Income & Tax Planning Brings It All Together

Equity compensation isn’t something to “figure out later.” It’s an ongoing process that should be coordinated with your investments, taxes, cash flow, and long-term goals. That’s why year-round planning is so important—especially for high earners with multiple forms of equity and complex income patterns.

Ready to Plan Your Equity Compensation Strategy?

If you're an executive or high earner in Richmond or anywhere in Central Virginia, we’d love to help you build a clear, tax-efficient strategy around your RSUs, stock options, and deferred compensation. Start a conversation or explore whether you're a good fit for Ascent Financial Group.