Tech employees can make great money, but they also get hit with one of the worst taxes imaginable. It is not AMT, State income tax, or anything to do with Capital Gains.
We call it the 'Double Tax' on Stock Compensation. For new clients, this is one of our favorite wins to get right off the bat. We've amended too many tax returns that were hit by the 'Double Tax'.
Have you ever heard someone say this? “I feel like all of my money is going to taxes.” Well, in some cases they are right.
If you are maxing out your regular 401(k) deferrals, making annual “backdoor” Roth IRA contributions, and still have additional funds to be put away for retirement, then making after-tax “mega backdoor” Roth 401(k) deferrals could be your next savings step. Those contributions can be incredibly impactful in helping you arrive at retirement with a large tax-free account.
In a perfect world you would arrive at retirement with both pre-tax (such as traditional 401(k)s and IRAs) and post-tax (Roth 401(k)s and Roth IRAs) retirement accounts to allow for tax bracket optimization and wider tax planning opportunities. Let’s take a look at the difference between traditional and Roth IRAs, and see how you can contribute to a Roth IRA even when you are over the income limits.
With California’s tax rate topping out at 13.3%, many residents are asking questions like this: How can I minimize my California tax hit when my company IPOs or I have a large windfall? Or this: If I leave California with all of my stock options, do I avoid paying California taxes?
Here is an extensive guide on the topic of California taxation of your equity.
AMT (“Alternative Minimum Tax”) is one area of the tax code that a start-up employee knows a lot more about than your average taxpayer, since incentive stock options are a common AMT trigger. Though many know about AMT, or at least have heard of it, few truly understand its mechanics due to the many moving parts in the analysis. We will address AMT calculations and credits, and explain why AMT isn’t as bad as it is commonly made out to be.
For those who expect to have at least one low-income year, a roth conversion could make a lot of sense. A roth conversion could be a way to get the best of both worlds with retirement accounts. If you’re retiring early or quitting your job to launch a company, raise a family, or travel then this post is for you.
