If you’ve earned equity as part of your compensation — through stock options, RSUs, or ESPPs — you may be holding more complexity than you realize. Without thoughtful planning, equity can lead to unexpected taxes, timing mistakes, and missed opportunities for wealth creation.

Here are five of the most common mistakes high-income earners make with equity compensation — and how to avoid them.

Mistake 1: Ignoring the AMT When Exercising Incentive Stock Options (ISOs)

Why it matters: The Alternative Minimum Tax (AMT) can trigger a large tax bill in the year you exercise ISOs, even if you don’t sell the shares. Many professionals are caught off guard when their AMT bill is due the following April.

What to do instead: Plan your ISO exercises in coordination with a tax advisor. In some cases, spreading exercises over multiple years or pairing them with disqualifying sales can reduce exposure to AMT while still capturing upside.

Mistake 2: Waiting Until Vesting or Expiration to Make Decisions

Why it matters: Equity decisions are often made in a rush — right before options expire or RSUs vest. This leads to reactive decisions and missed planning opportunities.

What to do instead: Model multiple scenarios well in advance: early exercise vs. hold, cash-flow impact, tax outcomes, and alignment with personal goals. A proactive equity strategy should be part of your broader financial plan — not just a last-minute move.

Mistake 3: Forgetting That Equity = Concentration Risk

Why it matters: It’s easy to let company stock build up unnoticed — especially in high-growth firms. But overconcentration in one stock, especially your employer’s, increases both volatility and risk to your total financial picture.

What to do instead: Set thresholds for how much of your net worth you want concentrated in one company. Use diversification strategies (such as planned sales or hedging) to manage exposure.

Mistake 4: Selling Without a Tax Strategy

Why it matters: Whether you’re selling RSUs, NSOs, or ESPP shares, the way you sell can drastically affect your tax bill. Many professionals accidentally trigger short-term capital gains or higher ordinary income taxes.

What to do instead: Time sales to benefit from long-term capital gains when possible, and coordinate with high-income tax planning strategies (like charitable giving, harvesting losses, or managing bracket thresholds).

Mistake 5: Not Integrating Equity into Long-Term Goals

Why it matters: Equity often lives in a silo — treated separately from retirement, education, or business planning. But it’s one of your most valuable assets, and deserves to be part of the full picture.

What to do instead: Build your equity strategy into a holistic plan that covers taxes, estate planning, liquidity needs, and legacy goals. This gives your decisions real context — and often better outcomes.

Final Thoughts

Equity compensation can be a powerful wealth-building tool — but only when managed proactively and with care.

At Forman Investment Services, we help high-income professionals turn equity complexity into clarity through integrated financial planning and tax-smart strategies.

This content was created with the assistance of artificial intelligence (AI). While efforts have been made to ensure the quality and reliability of the content, it is important to note that AI-generated content may not always reflect the most current developments or nuanced human perspectives. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance does not guarantee future results. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Any opinions are those of Forman Investment Services and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.