Qualified Small Business Stock: A Powerful Tax Planning Opportunity
You don’t work at Meta anymore, and you’re certainly not alone. In fact, about 25% of the social media giant’s staff has departed, approximately 11,000 in a layoff announced in November of 2022, and another 10,000 announced in March of 2023.
Depending on how much Meta stock compensation you received during your tenure, you may be the recipient of “sudden wealth.” Like lottery winners, pro athletes, business sellers, and M&A beneficiaries, some laid-off tech workers suddenly find themselves with more financial resources on hand than they’re used to having. While that’s definitely good on balance, it can complicate things when you’re worried about bills and looking for work in a tightening labor market. Sudden wealth can also drive out caution, even if caution is your customary stance on finances. You may become an impulse buyer or make promises that may not be in your long-term interest. Though this seems like a dream scenario to many, sudden wealth comes with its own set of challenges that can feel like a burden rather than a gift, forcing you to ask what’s my plan?
Our Five-Step Framework
At Cerity Partners, experience has taught us that a financial plan can provide a framework for managing diverse situations, whether you’re strategizing how to make it through a temporary rough patch or facing a life-changing windfall. Here are the steps we recommend to balance competing priorities and make informed decisions now and going forward.
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1
Take stock
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- How much did you receive? How will it be paid? RSUs, NSOs, ISOs, and restricted stock may have different tax implications.
- Are you saving enough, based on conservative assumptions about company stock performance? As the saying goes, “if the stock does well” isn’t a financial plan.
- What is the estimated tax liability? What can you do to minimize it prudently?
- Where will you put the money until you have a plan?
- What are your short- and long-term financial needs and goals?
- Do you have a trusted team of advisors who can help you manage your finances?
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2
Make an investment plan
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- How much should you set aside for living expenses, taxes, and other shorter-term goals?
- What type of investment return do you need to accomplish your longer-term goals?
- What level of risk are you comfortable with when investing? As a tech worker, are you courting unnecessary risk by over allocating to technology stocks due to the familiarity bias?
- Whether by equity compensation, acquisition, or IPO, do you have a concentrated position or windfall that needs to be actively hedged, managed, or monitored?
- How can you restructure your portfolio (asset allocation and location) to maximize after-tax returns?
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3
Write an risk management checklist
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- Should you consider using life insurance to cover your estate taxes?
- Do you have a personal umbrella liability insurance policy?
- Do you have an asset protection strategy in place?
- Do you have the right type and amount of coverage (homeowners, disability, long-term care)?
- Should you increase deductibles?
- Will you need a personal articles policy for items like jewelry and art?
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4
Consider your estate-planning priorities
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- Are there any new or unique assets that need to be addressed from an estate-planning perspective?
- Do your estate planning documents accurately reflect your wishes?
- Should you consider setting up a trust?
- Who will manage your finances and make health care decisions if you’re unable to do so?
- What, if any, strategies should be used to minimize future estate taxes?
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5
Think about philanthropic planning
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- Do you want to pay for a loved one’s education? If so, how (and how much) will you pay?
- How will you handle requests from loved ones to borrow money?
- How much of your new wealth do you want to allocate to charitable gifting?
- What strategies make the most sense for your charitable gifts?
We’ll Get Through This Together
Luckily, you don’t have to shoulder all this responsibility by yourself. There are experts available to help you at every turn — it could be time to find advisors able to guide you through the five steps above, and help you assemble a team of professionals that is up to the task.
By taking proactive steps to plan for new opportunities and navigate the shifting landscape of the tech industry, you can position yourself for success and emerge stronger from this experience. So, what’s your plan? The experts at Cerity Partners are here to help you consider your options and take the necessary steps to achieve your goals. Don’t let uncertainty hold you back – take action today and start building a brighter future for yourself.
Meet Myles VanderWeele
Myles is a Partner based in the San Francisco office. He provides investment and financial planning advice to help clients achieve their short- and...Read more
Meet Myles
Meet Dustin Ribergaard
Dustin is a Principal based in the San Francisco office. As a Client Experience Director, he is a liaison between prospective clients and the...Read more
Meet Dustin
Cerity Partners is not contracted with, endorsed by or affiliated with Meta.
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