Equity compensation is a frequent source of double taxation and reporting errors. The most common issue is misunderstanding how income flows between W-2s and brokerage statements.

The CPA should first identify the type of equity compensation involved. RSUs, NSOs, ISOs, and ESPPs each have distinct tax treatments.

Next, reconcile W-2 income with brokerage proceeds. Many clients incorrectly report full sale proceeds as capital gains without adjusting for income already included in wages.

Timing matters significantly. Vesting, exercise, and sale dates all affect tax outcomes, especially for ISO related AMT exposure.

FAQs

Why is equity compensation often misreported?
Because income appears in multiple places.

Are RSU sale proceeds fully taxable as gains?
No. A portion is already taxed as wages.

When does AMT apply?
Primarily with ISOs under certain conditions.

What documents should be reviewed?
W-2s, brokerage statements, and vesting schedules.

What is the biggest CPA mistake here?
Failing to reconcile income sources.