How to Deal with RSU’s

Many clients ask us: “have you dealt with RSUs before?”

We have, but before we dive any deeper into how we handle RSUs, let’s take a minute to discuss them.

RSUs, or Restricted Stock Units, are a way to compensate employees. It’s a method that’s used very frequently in the tech industry. An employee is given stock grants that vest on a set schedule. On the vesting date, they receive the right to the stock, at which time it is taxed and included in the employee’s compensation.

Sell to Cover: This usually is an option offered where a set amount of stock is sold to cover your estimated taxes on the stock vest.

The Biggest Concerns with RSU’s and the Sell to Cover Option

Most of the time the sell to cover option is a set ratio like 22% to 25%. However, the taxpayer’s tax rate might not be 22 to 25%. If they are highly compensated, their tax rate could be 28% to 32%, which would create a gap between what has been paid in and what is going to be owed at year end.

We recommend that you see if you can change your sell to cover option to be closer to your effective tax bracket. The other option is to increase your monthly withholding to lessen the amount you might owe.

TL;DR: We can help with an estimated tax plan to see if you are going to owe taxes from owning RSUs.

What is the Difference Between Being Self-Employed and a Small Business Owner?

Many people tend to use “self-employed” and “small business owner” interchangeably when discussing their business. At TL;DR, we refer to different types of clients as noted below:

  • Self-Employed: Works for themselves
  • Small Business Owner: Hires employees or independent contractors

I refer to TL;DR: Accounting as a small business, especially since our team has grown, but that doesn’t mean that if you have hired employees that you can’t refer to yourself as self-employed.

There is no tax difference between being self-employed or being a small business owner. The biggest dictator of your tax situation depends on how your business is formed, like making the S-Corp election.

TL;DR: Use whichever term feels like it fits your situation – we don’t judge.