By Adam Brooks, CFP®
For many executive employees, compensation looks generous on paper, but the tax impact often tells a different story. A bonus arrives and the net feels lighter than expected. Equity vests and triggers a tax bill before you’ve sold a single share. Deferred income meant to help later ends up stacking on top of everything else.
These moments aren’t mistakes; they’re signals that executive compensation plays by a different set of tax rules. Understanding where those pressure points are and planning around them can make a meaningful difference in how much of your compensation you actually keep. Below are four of the most common tax issues executive employees face, and why addressing them proactively matters.
1. Equity Compensation and Timing Risk
Stock options, restricted stock units (RSUs), and performance-based equity awards can be powerful wealth-building tools, but they also introduce significant tax complexity. Different forms of equity are taxed at different points, such as vesting, exercise, or sale, and in some cases a combination of the three. The timing of these events can have a significant impact on your tax bill.
RSUs, for example, are typically taxed as ordinary income when they vest, even if you don’t sell the shares. Stock options can create taxable income at exercise or sale, depending on the type. When you layer in stock price volatility, blackout periods, and the potential for concentrated exposure, it’s easy to see how well-intentioned decisions can lead to unintended tax consequences.
For many executives, the issue isn’t whether equity compensation is valuable; it’s how to coordinate timing so taxes, cash flow, and long-term goals stay aligned.
2. Income Thresholds and Hidden Surcharges
As executive compensation increases, so does exposure to income-based thresholds that quietly change the tax landscape. These thresholds don’t just affect your marginal tax rate; they can also trigger additional costs that feel disconnected from your base income.
Examples include Medicare IRMAA surcharges, the Net Investment Income Tax (NIIT), and the phaseout of deductions or credits. A bonus, equity vesting event, or deferred compensation payout can push income just high enough to activate these additional layers, often without much warning.
What makes this challenging is that these surtaxes aren’t always obvious when evaluating compensation offers or annual earnings. Strategic income planning can help smooth these spikes and prevent incremental income from being taxed more heavily than expected.
3. Deferred Compensation Plans
Nonqualified deferred compensation plans (often referred to as 409A or NQDC plans) are a common benefit for executives and can be highly effective when used intentionally. These plans allow you to defer income into future years, potentially lowering your tax burden during peak earning periods and shifting income into retirement or lower-tax years.
However, deferred compensation comes with important considerations. The assets are typically unsecured, distributions are taxed as ordinary income, and election decisions are often irrevocable once made. Without careful coordination, deferred payouts can stack on top of Social Security benefits, required minimum distributions, or large equity events, pushing income into higher tax brackets later in life.
The tax risk isn’t in deferring income; it’s deferring without a broader strategy. When timing, cash flow needs, and future income sources aren’t considered together, the intended tax benefit can erode quickly.
4. Concentration Risk and Capital Gains Planning
Many executives accumulate a significant portion of their wealth in their company’s stock. While this concentration can be rewarding, it also introduces both investment risk and tax complexity.
Selling a large position all at once can trigger substantial capital gains, state taxes, and surtaxes in a single year. On the other hand, holding too long may increase exposure to downside risk that’s difficult to unwind later without tax consequences.
Thoughtful capital gains planning, including spreading sales over time, coordinating gains with losses, or integrating charitable strategies, can help manage taxes while improving diversification. The goal isn’t to eliminate taxes altogether, but to maintain control over when and how they occur.
Strategic Support for Tax Issues for Executives
For executive employees, tax decisions don’t exist in isolation. Equity compensation, deferred income, retirement planning, and investment strategy are all interconnected, which is why piecemeal decisions often fall short.
At ABLE Financial Group, our coordinated approach addresses the most common tax issues for executives by considering timing, income thresholds, and long-term goals together. When done well, tax planning becomes less reactive and far more intentional.
If you’re navigating executive compensation and want help understanding how these issues fit into your broader financial picture, working with a financial advisor who understands the nuances can make all the difference. To learn more about our team and the ways we can help guide you, call 480.258.6104 or email adam@ablefinancialgroup.com today.
Frequently Asked Questions
What are the most common tax issues for executives?
Some of the most common tax issues for executives include unexpected taxes on equity compensation, income-based surcharges like IRMAA and the Net Investment Income Tax, poorly timed deferred compensation payouts, and large capital gains from concentrated stock positions. These issues often arise because executive pay is layered across bonuses, equity, and deferred income, each with its own tax rules.
How can executives reduce taxes on bonuses and equity compensation?
Reducing taxes on bonuses and equity compensation starts with timing and coordination. Executives benefit from understanding when RSUs vest, when stock options trigger taxable income, and how those events interact with bonuses or deferred compensation. At ABLE Financial Group, we help executives model different timing scenarios so equity decisions support cash flow, tax efficiency, and long-term goals rather than creating surprise tax bills.
Why is proactive tax planning important for executive employees?
Proactive tax planning matters because once income is earned or equity vests, most tax outcomes are already locked in. Without advance planning, executives can unintentionally trigger surtaxes, higher Medicare premiums, or stacked income in retirement years. Working with a financial advisor who understands executive compensation can help identify tax pressure points early and design strategies that keep more of your compensation working for you over time.
About Adam
Adam Brooks is Managing Director at ABLE Financial Group, a financial services practice that focuses on transition planning and simplifying the complexities of their clients’ wealth. As a CERTIFIED FINANCIAL PLANNER® practitioner, Adam has been guiding individuals, businesses, and non-profit organizations toward their financial goals since 1993. Co-founding ABLE Financial Group in 2006, Adam oversees the practice, working with business owner clients, primarily focusing on succession planning and mergers and acquisitions (M&As).
Adam obtained degrees in finance and accounting from the University of Arizona and holds the CFP® certification. Adam was recognized as one of Barron’s Top 1,200 Financial Advisors in 2021 and 2022, and was named a 2022 Forbes Best-in-State Wealth Advisor. Outside of his work as a financial advisor, Adam has taught a variety of courses at surrounding community colleges, including Successful Money Management Seminars and Rich Dad’s Cash Flow courses. Adam also previously hosted a radio show called The Truth About Money.
When not serving his clients, Adam actively serves his community in a variety of leadership positions. In 2011, Adam and co-founder Lee began funding the ABLE Financial Group Philanthropic Fund at the Jewish Community Foundation, allowing them to support some of their favorite organizations and causes today and into the future. Adam lives in Scottsdale with his wife, Cindy, their three sons, Jordan, Dylan, and Cameron, and their two dogs, Nelson and Sunny. Adam is active in his children’s lives, an avid cyclist, and enjoys local hikes with his family. To learn more about Adam, connect with him on LinkedIn.
