10 Year-End Financial Planning Tasks to Start Now and Complete Before December 31

For families with equity compensation, the end of the year is more than a time to review investment returns and make New Year’s resolutions. It is one of the best opportunities to make important year-end financial planning and tax planning decisions before December 31.

Restricted stock units (RSUs), employee stock purchase plans (ESPPs), incentive stock options (ISOs), nonqualified stock options (NSOs), bonuses, and other forms of equity compensation can make your financial situation significantly more complicated. A decision made in in the final months of the year can affect your tax bill, investment risk, charitable giving, retirement savings, and financial goals for years to come.

Here are 10 year-end financial planning tasks to consider before the calendar year ends.

1. Review Your Total Income for the Year

The first step in year-end financial planning is determining what your total income is likely to be for the year.

For employees with equity compensation, this means looking beyond your salary. Your income may include:

• Salary and bonuses

• RSU vesting

• ESPP income

• Stock option exercises

• Capital gains from selling company stock

• Interest and dividends

• Side-business income

• Other investment income

Understanding your estimated taxable income can help determine whether additional tax planning opportunities make sense. For example, if you experienced a large amount of RSU vesting income this year, your marginal tax rate may be higher than expected. That could affect decisions involving Roth conversions, charitable contributions, capital gains, retirement contributions, and estimated tax payments.

2. Calculate Your Year-End Equity Compensation Tax Exposure

One of the most important year-end financial planning tasks for employees with equity compensation is estimating the taxes associated with their company stock. RSUs are generally taxable as ordinary income when they vest. The value of the shares at vesting is generally included in W-2 income, with taxes typically withheld through the employer's payroll system. But withholding does not necessarily mean your tax obligation has been fully satisfied.

Review:

• Total RSUs vested during the year

• Value of shares at vesting

• Federal tax withholding

• State tax withholding

• Shares sold during the year

• Shares still held

• Estimated capital gains or losses

This review can help determine whether you may have an unexpected tax liability when you file your tax return.

3. Review Your ESPP Shares

Employee Stock Purchase Plans (ESPPs) deserve special attention during year-end financial planning.

If you purchased company stock through an ESPP, determine:

• Your purchase price

• The market value at purchase

• Whether you have sold any shares

• How long you have held the shares

• Whether a sale will be a qualified or disqualifying disposition

• Your potential ordinary income and capital gain

ESPP taxation can be complicated because the tax treatment depends partly on how long you hold the shares. Year-end is also a good time to decide whether you want to continue treating your ESPP as an investment or instead use future purchases as a source of additional income.

4. Evaluate Your Stock Options

If you have incentive stock options (ISOs) or nonqualified stock options (NSOs), now is an important time to review your outstanding options. For ISOs, exercising options can create alternative minimum tax (AMT) exposure even though the exercise itself may not create regular taxable income.

Before exercising ISOs, consider:

• The number of options available

• Exercise price

• Current stock price

• Potential AMT income

• Your existing AMT exposure

• Cash required for the exercise

• Concentration in company stock

• Potential future capital gains

NSOs have different tax consequences because the spread between the exercise price and fair market value is generally treated as ordinary compensation income. A year-end stock option tax planning review can help you determine whether exercising options now, waiting, or spreading exercises across multiple years makes sense.

5. Harvest Investment Losses

Year-end is also a good time to review your taxable investment accounts for opportunities to realize losses. Tax-loss harvesting involves selling investments that have declined in value to potentially offset capital gains elsewhere in your portfolio. This can be particularly useful for employees who sold appreciated RSUs, ESPP shares, or company stock during the year.

However, tax-loss harvesting needs to be coordinated with the wash-sale rules, investment strategy, and your overall portfolio.

The goal isn't simply to generate tax losses. The goal is to use losses strategically while maintaining an appropriate investment portfolio.

6. Reduce Your Company Stock Concentration

Equity compensation can create a unique investment risk: your income and your investment portfolio may both depend on the same company. If you receive RSUs, exercise stock options, or participate in an ESPP, you may already have substantial exposure to your employer. At year-end, calculate what percentage of your net worth is tied to company stock.

Ask:

If my employer's stock dropped 30%, 40%, or 50%, would my financial plan still work?

If the answer is no, consider creating a systematic strategy for selling vested shares. This does not necessarily mean selling everything. Instead, consider establishing equity compensation diversification rules that determine how much company stock you are comfortable holding.

7. Review Retirement Contributions

Year-end is an important deadline for reviewing your retirement savings strategy.

Check your:

• 401(k) contributions

• Roth 401(k) contributions

• IRA contributions

• Roth IRA eligibility

• HSA contributions

• Employer matching contributions

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Employees with significant equity compensation should also consider whether their retirement contributions are keeping pace with their overall income. If your employer allows after-tax 401(k) contributions, in-plan Roth conversions, or other advanced retirement plan strategies, review the plan rules before the year ends. For high-income Bay Area employees, maximizing available tax-advantaged accounts can be particularly valuable.

8. Consider a Roth Conversion

If you have money in a traditional IRA or old 401(k), a Roth conversion may be worth evaluating before year-end. A Roth conversion moves money from a traditional retirement account into a Roth account and generally creates taxable income. The key question is whether paying taxes today at your current marginal tax rate could make sense compared with paying potentially higher taxes later.

Your equity compensation matters here. A year with unusually high RSU income may not be the ideal year for a large Roth conversion. Conversely, a lower-income year could create an opportunity to convert more assets at a lower tax rate.

This is why Roth conversion planning should be coordinated with equity compensation tax planning.

9. Make Charitable Giving Decisions

For employees with appreciated company stock, donating appreciated shares to a qualified charitable organization may be more tax-efficient than selling the shares and donating cash.

Depending on your circumstances, donating appreciated securities can potentially allow you to avoid realizing the capital gain while receiving a charitable deduction, subject to applicable tax rules and limitations.

You may also want to consider:

• Donor-advised funds

• Qualified charitable distributions after age 70½

• Bunching charitable contributions

• Appreciated RSUs or other investments

• Charitable giving as part of your long-term estate plan

For families with substantial equity compensation, charitable planning can be an important part of a broader tax-efficient wealth management strategy.

10. Build Your Financial Planning Checklist for Next Year

Finally, don't limit your year-end financial planning to the current tax year. Use the remainder of the year to identify what is coming next year.

Review your expected:

• RSU vesting schedule

• ESPP purchase dates

• Stock option expiration dates

• Bonus opportunities

• Expected salary changes

• Capital gains

• Major purchases

• College funding needs

• Retirement goals

• Estate planning needs

Create a calendar of important equity compensation dates and financial planning deadlines. This is especially important because equity compensation decisions often require planning months—not days—in advance.

Make Year-End Planning a Financial Strategy, Not a December Scramble

The best year-end financial planning process isn't simply about checking boxes before December 31. It is about understanding how your income, investments, taxes, retirement accounts, company stock, and long-term goals work together.

For employees with RSUs, ESPPs, ISOs, NSOs, and other equity compensation, year-end planning can be particularly valuable because compensation decisions can have significant tax and investment consequences.

Start by estimating your income and tax liability. Then review your equity compensation, company stock concentration, retirement contributions, capital gains and losses, charitable giving, and upcoming financial decisions.

Most importantly, don't wait until tax season to discover that a December decision could have changed your financial outcome.

The earlier you begin your year-end financial planning, the more opportunities you may have to make your equity compensation work as part of a comprehensive wealth strategy.