![]() ![]() If you think you’re happy about your windfall, imagine how Uncle Sam feels: After all, depending on the amount of money you net from an RSU vesting or stock option, you could land in a higher personal tax bracket, facing an increased alternative minimum tax or calculating new capital gains tax exposure. Don’t let lax tax planning reduce your bounty ![]() ![]() A financial advisor can help you more fully understand your menu of options and tailor your strategy accordingly. Or, conversely, holding stock for long enough - a year - to transform what would’ve been classified as a short-term hold and taxable as ordinary income to the typically lower long-term capital gain rate. ![]() That may mean accepting the tax exposure of an immediate payout in order to pay down high-interest debt. Essentially, you’ll want to integrate the pros and cons of the aforementioned acronyms - RSUs, ISOs and NQSOs - into your own slate of resources, needs, and short- and long-term goals. Your goal in the immediate aftermath of an IPO is, somewhat paradoxically, simple but not easy. The answers to all of these questions will likely be easier to find with an outside, experienced perspective on hand. What, for example, are the pros and cons of selling immediately after the lock-up period versus selling on a predetermined schedule - say, a certain percentage each quarter to hedge against potential volatility? How can you best integrate your post-IPO stock into a properly diversified portfolio that will serve your short- and long-term goals? What context might you be missing regarding both the potential upside and downside of the stock by virtue of your emotional and financial proximity to it? On the other hand, one can also look at this as an opportunity to digest the IPO, the market and public reaction to it, and consult with seasoned advisors about best next steps to take once the dust settles. Of course, this can be a nerve-racking time for employees such as yourself who are essentially asked to sit by and watch any price fluctuations without recourse. And for good reason: Without one, overly exuberant insiders could sell a plethora of shares immediately after IPO, distorting - and, perhaps, depressing - the stock price just as general investors are getting their first crack at it. When a company goes public, there is a lock-up period - typically around 180 days - that prevents an employee from selling their stock. Among these are when you should exercise (i.e., pre- or post-IPO), whether your grant is an incentive stock option (ISO) or non-qualified stock option (NQSO), do you have the liquidity to purchase the shares and cover the income tax, and your investing time horizon and risk tolerance level. Which means you are not only close to knowing the actual size and shape of your potential windfall, but also to having to grapple with the accompanying personal finance, tax and regulatory implications.Īs far as employee stock options, which are a set number of shares an employee is allowed to purchase at a specific price over a set period of time according to a vesting schedule, are concerned, a whole host of issues are at play. If, for example, you have restricted stock or restricted stock units (RSUs) - i.e., shares or units that typically vest over time based on your length of employment or certain performance benchmarks - the IPO may very well be the trigger to finding out what you actually own. For example, in contrast to the sharp decline in capital values, average industrial rental values have increased by 5.9 per cent since June 2022.Now that the rubber has hit the public offering road, the details of what is in your portfolio will no doubt begin to take on considerably more weight and urgency. That’s worth noting because there is a strong positive long-term correlation between rental growth rates and inflation, with sectors benefiting from structural demand drivers and lower vacancy rates delivering rental growth well above the long-term average of 0.9 per cent. However, occupational markets have remained resilient, with UK real estate delivering average nominal rental value growth of 2.5 per cent in the past year. The resultant fall in values has increased average real estate net initial yields (NIY) from 3.8 per cent in June 2022 to 4.7 per cent today. Higher interest rates have impeded debt-backed buyers and increased refinancing risk for many borrowers, with a related fall in equity and bond prices leaving some institutions overallocated to real estate. The commercial real estate sector has taken a battering in the past 12 months, as highlighted by a 17.7 per cent decline in average values between 1 July 2022 and 31 March 2023. ![]()
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