The terms behind
the timing.
The vocabulary of tax strategy, equity comp, exits, property, estates and retirement — defined in plain English. Expand an entry for the full definition, why it matters and FAQs.
Updated October 2026 · 28 terms
0–9
83(b) Window
The 83(b) window is the 30-day period after you receive restricted stock in which you can elect to be taxed on its value now rather than when it vests.
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Full definition
An 83(b) election is filed with the IRS within 30 days of the grant, and the deadline cannot be extended. By electing, you pay ordinary income tax on the current value, which is often small or zero for early-stage company stock, and your capital-gains holding period begins immediately. Future growth is then taxed as capital gain instead of ordinary income. The election is generally available for restricted stock and early-exercised options, but not for RSUs.
Why it matters
For a founder or early employee, a small 83(b) tax payment today can save a very large ordinary-income bill later. It can also start the clock on long-term capital gain treatment and on the qualified small business stock (QSBS) holding period. Missing the 30 days cannot be undone.
FAQs
What happens if I miss the 83(b) deadline?
The election is lost. You are generally taxed as the shares vest, at their value on each vest date.
Is an 83(b) election always a good idea?
No. If the stock is worth a lot at grant, or you might forfeit the shares, paying tax up front can be a mistake. It fits best when value is low and growth is expected.
Can I file an 83(b) for RSUs?
No. RSUs are not eligible because no property is transferred until vest.
409A Rules
Section 409A is the tax code provision that sets strict rules on when deferred compensation can be elected and paid, with heavy penalties for violations.
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Full definition
Section 409A governs nonqualified deferred compensation, including some stock options, bonuses, and severance arrangements. It requires that deferral elections be made in advance, that payments occur only on permitted events, and that the plan be documented in writing. If a plan fails, the deferred amounts become taxable in the year they vest, plus a 20% additional federal tax and interest. California adds its own additional tax. Stock options granted below fair market value, and some private-company equity, can fall under 409A.
Why it matters
A 409A failure can turn a deferral into one of the most expensive tax mistakes an executive or employee can make, and it usually cannot be fixed after the fact. Understanding the rules before you sign an agreement is far safer than trying to repair it later. Short-term deferrals, such as RSUs paid soon after vesting, are generally exempt.
FAQs
What is the penalty for violating 409A?
The deferred amount becomes taxable when it vests, with a 20% additional federal tax and premium interest. California adds a separate additional tax.
Does 409A apply to my stock options?
It can, if the exercise price is below the fair market value on the grant date. Private companies usually rely on a formal 409A valuation to set the strike price.
Can I fix a 409A mistake?
Limited correction programs exist for certain errors, usually if caught early. Prevention is far easier than correction.
1031 Exchange
A 1031 exchange lets you defer capital gains tax when you sell investment or business real estate and reinvest the proceeds in similar real property.
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Full definition
Under Section 1031, you can swap real property held for investment or business use for other real property without recognizing gain at the time. You must identify replacement property within 45 days and close within 180 days, and proceeds must be held by a qualified intermediary, not by you. Since 2018, the rule applies only to real property, not equipment, art, or other personal property. California requires an annual filing when replacement property is outside the state.
Why it matters
For business owners and investors with real estate, a 1031 exchange allows gains to compound in the next property rather than being reduced by tax. The deadlines are strict, and missing either one disqualifies the exchange.
FAQs
Does a 1031 exchange work for a primary residence?
No. The property must be held for investment or business use. Separate rules apply to gains on a primary home.
What are the 45-day and 180-day rules?
You have 45 days from the sale to identify replacement properties in writing and 180 days to close on them.
Is the tax ever paid?
It is deferred, not forgiven. Tax comes due when you eventually sell without exchanging, although heirs may receive a step-up in basis at death.
A
Alternative Investments
Alternative investments are assets outside traditional stocks, bonds, and cash, such as private equity, venture capital, hedge funds, real estate, and private credit.
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Full definition
Alternatives often have different tax profiles than public securities. Partnership investments send a Schedule K-1 that can arrive late and require extended tax filing. Some generate ordinary income, others long-term gains, and some produce unrelated business taxable income (UBTI) inside retirement accounts. Illiquidity means you may owe tax on income you have not received in cash. Access is often limited to accredited investors.
Why it matters
Alternatives can diversify a portfolio, especially after a liquidity event, but they add tax complexity, extension filings, and cash-flow planning. Where an investment is held, in a taxable account, a trust, or an IRA, changes how it is taxed.
FAQs
Why do alternatives delay my tax return?
K-1s are often issued after the standard filing deadline, so many investors file extensions.
Are alternative investments tax efficient?
It depends on the strategy. Some produce long-term gains and deductions, while others generate ordinary income, so location and structure matter.
Can I hold alternatives in an IRA?
Sometimes, but UBTI and custodian rules can create tax inside the IRA. Review the specific investment first.
B
Business Continuity Plan
A business continuity plan is a written strategy for keeping a business running, and keeping its value intact, if an owner or key person dies, becomes disabled, or leaves.
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Full definition
For owners, the plan covers who steps in, who can sign and access accounts, how the business will be valued, and how an owner’s interest is bought out or transferred. It typically includes a buy-sell agreement, key-person and funding insurance, successor management, and communication steps for employees, lenders, and clients. The funding and structure of the plan have tax consequences for the owners and their estates.
Why it matters
For many founders, the business is the largest asset they own. Without a plan, a death or disability can force a rushed sale at a discount, trigger disputes among partners, and leave family members with an illiquid asset and a tax bill.
FAQs
What is a buy-sell agreement?
A contract that sets what happens to an owner’s interest on death, disability, or departure, including who buys it, at what price, and how it is funded.
Is life insurance part of a continuity plan?
Often. Insurance can provide cash to fund a buyout, but who owns the policy affects both control and estate tax.
Who needs a business continuity plan?
Any business with owners, partners, or key people whose absence would disrupt operations or value, regardless of size.
C
California Tax
California taxes residents on worldwide income at graduated rates up to 13.3%, and treats capital gains as ordinary income with no lower rate.
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Full definition
California has the highest top marginal income tax rate in the country: 12.3%, plus a 1% mental health services tax on income above $1 million, for 13.3%. Capital gains, equity compensation, and deferred compensation are all taxed at those rates. California does not conform to several federal provisions, including the QSBS exclusion and the opportunity zone rules. Nonresidents are taxed on California-source income, which can include equity compensation tied to days worked in the state. The Franchise Tax Board closely audits residency changes, so domicile, not just where you sleep, is what matters.
Why it matters
For California founders and equity holders, state tax often rivals the federal bill. A federal strategy that works in isolation, such as QSBS, may not reduce state tax at all. Residency, timing of income, and the sourcing of equity should be planned together, well before a large event.
FAQs
What is the top California income tax rate?
13.3% on income above $1 million, including the 1% mental health services tax. Most high earners pay 9.3% to 12.3% below that level.
Does California tax capital gains differently?
No. California taxes capital gains at the same rates as wages, so there is no state discount for holding an asset over a year.
If I move out of California, do I still owe tax on equity?
Possibly. California can tax equity income that is sourced to your time working in the state, even after you become a nonresident.
Capital Gains Tax
Capital gains tax is the tax on the profit when you sell an asset, such as stock or real estate, for more than you paid.
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Full definition
Federal law taxes long-term gains (assets held more than a year) at 0%, 15%, or 20%, depending on income. Short-term gains are taxed as ordinary income. Higher earners may also owe the 3.8% Net Investment Income Tax (NIIT) on investment income above $200,000 for single filers or $250,000 for joint filers. California treats capital gains as ordinary income with no preferential rate, so the combined top rate can approach 37%.
Why it matters
Capital gains are one of the three taxes that shape a founder or equity holder’s wealth, and the one you control most through timing. When you sell, how long you held, and what you sell alongside it can change the bill by six figures.
FAQs
What is the capital gains tax rate in 2026?
Federal long-term rates are 0%, 15%, or 20%, plus the 3.8% NIIT for higher earners. California adds up to 13.3% on top of that.
How can I reduce capital gains tax?
Common approaches include holding past one year, harvesting losses, giving appreciated shares to charity, using qualified small business stock (QSBS), and spreading sales across tax years.
Do I pay capital gains tax if I reinvest the proceeds?
Generally yes. Reinvesting does not erase the gain, except in specific structures such as a 1031 exchange or opportunity zone investment.
Concentrated Stock
Concentrated stock is a large position in a single company’s shares, often from equity compensation, that makes up an outsized share of your net worth.
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Full definition
There is no official threshold, but many advisors flag a position above roughly 10% to 20% of investable assets. Concentration usually builds through RSU vesting, option exercises, or years of appreciation. The tax challenge is that selling triggers capital gains, so people hold on and keep the risk. Strategies to reduce concentration include staged selling across tax years, donating appreciated shares, tax-loss harvesting elsewhere to offset gains, exchange funds, and, for insiders, pre-scheduled sale plans.
Why it matters
One company’s decline can erase years of wealth, and your paycheck is often tied to that same company. Planning gives you a path to diversify without a single large tax bill.
FAQs
How much company stock is too much?
There is no universal rule, but a single stock above 10% to 20% of your portfolio is commonly considered concentrated, especially when your job depends on the same company.
How do I diversify without a huge tax bill?
By spreading sales over several years, offsetting gains with losses, donating shares, or using an exchange fund. The right mix depends on your basis, holding period, and goals.
Should I sell vested RSUs right away?
Many people do, because the shares were just taxed as income and selling creates little extra gain. Plan, rather than default, if the stock is a large part of your wealth.
Connelly Review
A Connelly review is a check of your business buy-sell agreement and life insurance funding to see whether it could unintentionally raise estate tax after an owner’s death.
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Full definition
In Connelly v. United States (2024), the Supreme Court held that life insurance proceeds a company receives to redeem a deceased owner’s shares are a corporate asset that increases the company’s value for estate tax purposes, without an offset for the obligation to redeem. For some owners, this pushed the estate’s taxable value of the business higher than the buyout price. A review examines whether the agreement uses an entity redemption or a cross-purchase structure, how value is set, who owns the insurance, and whether alternatives would reduce the risk.
Why it matters
Many closely held companies have buy-sell agreements written years ago under assumptions that no longer hold. A review is a low-cost way to find out whether your plan works as intended before it is tested, since changes are far easier while all owners are alive and healthy.
FAQs
Who should consider a Connelly review?
Owners of closely held companies with a buy-sell agreement funded by company-owned life insurance, especially where the combined value may approach the estate tax exemption.
What can change after a review?
Some owners move to a cross-purchase structure, adjust who owns the insurance, update valuation language, or restructure the funding.
Does the Connelly decision affect every business?
No. It primarily affects closely held corporations using redemption agreements funded by company-owned insurance. Your attorney and tax advisor should confirm how it applies to your entity.
E
Equity Compensation
Equity compensation is pay in the form of company ownership, such as RSUs, stock options, or restricted stock, in addition to salary and bonus.
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Equity compensation includes restricted stock units (RSUs), incentive stock options (ISOs), nonqualified stock options (NSOs), restricted stock, and employee stock purchase plans (ESPPs). Each is taxed at a different moment: grant, vesting, exercise, or sale. The tax treatment also differs between public and private companies, and between federal and state rules.
Why it matters
For many professionals, equity becomes the largest part of both net worth and tax bill. Misunderstanding when each type is taxed leads to surprise bills, under-withholding, and concentrated positions that are sold at the wrong time.
FAQs
When is equity compensation taxed?
It depends on the type. RSUs are taxed at vest, NSOs at exercise, and ISOs generally at sale, although exercising ISOs can trigger the alternative minimum tax (AMT).
Should I sell shares as soon as they vest?
Often a reasonable default, because holding adds concentration risk. The right answer depends on your tax picture, your other holdings, and your goals.
Does my state tax equity compensation?
Yes. California, for example, can tax equity income based on the number of days you worked in the state between grant and vest, even if you move away before selling.
Estate Planning
Estate planning is the process of deciding how your assets will be managed during incapacity and passed on after death, while limiting tax, cost, and delay.
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A complete plan usually includes a will, a revocable living trust, powers of attorney, healthcare directives, and beneficiary designations on retirement accounts and insurance. For larger estates, it may add irrevocable trusts such as spousal lifetime access trusts, grantor retained annuity trusts, or life insurance trusts, along with annual gifting. In California, a revocable trust is commonly used to avoid probate, which carries statutory fees based on the estate’s gross value. Property tax reassessment under Proposition 19 can also affect real estate passed to children.
Why it matters
Estate planning is the third of the three taxes, and the one people postpone longest. Without a plan, the court and the default rules decide who inherits, who is in charge, and how much goes to tax. Planning is also the best time to coordinate it with equity, business, and charitable goals.
FAQs
Do I need estate planning if my estate is under the federal exemption?
Yes. Incapacity planning, probate avoidance, guardianship for children, and beneficiary designations matter at every level of wealth.
What is the difference between a will and a trust?
A will takes effect at death and generally goes through probate. A revocable trust operates during life and after death, and it typically avoids probate.
How often should I update my estate plan?
Every few years and after major events: a sale, a birth, a marriage or divorce, a move, a large equity event, or a change in tax law.
Estate Taxes
Estate tax is a tax on the transfer of your wealth at death, applied only to the portion of your estate that exceeds the exemption.
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Full definition
For 2026, the federal estate and gift tax exemption is $15 million per person, or $30 million for a married couple using portability, and it is indexed for inflation. The One Big Beautiful Bill Act (OBBBA) made that level permanent. Amounts above the exemption are taxed at up to 40%. Lifetime gifts above the $19,000 annual per-recipient exclusion use up part of the same exemption. Assets generally receive a step-up in basis at death. California has no state estate or inheritance tax, but other states do, which matters if you own property elsewhere or move.
Why it matters
A founder with a large liquidity event can cross the exemption quickly, and a 40% rate leaves little room for error. Tools such as gifting, trusts, and charitable planning work best when set up before the value arrives, not after.
FAQs
What is the estate tax exemption for 2026?
$15 million per person and $30 million for a married couple, indexed for inflation going forward. Rates above that are up to 40%.
Does California have an estate tax?
No. California has no estate or inheritance tax, though federal tax can apply and other states may tax property you own there.
What is portability?
It lets a surviving spouse use the deceased spouse’s unused exemption if a federal estate tax return is filed on time, even when no tax is due.
Exchange Fund
An exchange fund is a private investment pool where investors contribute concentrated stock in exchange for a share of a diversified portfolio, without selling and triggering immediate tax.
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Full definition
Investors contribute appreciated shares to a partnership and receive units representing a diversified basket. The contribution is not a taxable sale, and the original cost basis and holding period carry over. After a required holding period, typically seven years, you can redeem your units for a diversified portfolio of stocks. Funds must hold a portion of assets in qualifying illiquid investments, usually real estate, which adds fees and illiquidity. They are generally limited to accredited investors and qualified purchasers.
Why it matters
An exchange fund can diversify a large low-basis position without realizing the gain. The trade-offs are the long lock-up, ongoing fees, and a carryover basis, so the deferred gain remains when you eventually sell.
FAQs
Who can invest in an exchange fund?
Generally accredited investors and qualified purchasers with a sizable position in a single stock. Minimums and eligible stocks vary by fund.
What happens if I leave early?
Withdrawing before the required period typically returns your original shares instead of a diversified basket, which defeats the purpose.
Does an exchange fund eliminate the tax?
No. It defers it. Your carryover basis stays low, and the gain is taxed when you eventually sell the diversified holdings, or avoided through gifting or at death.
H
High Earner, Not Rich Yet (H.E.N.R.Y.)
HENRY stands for High Earner, Not Rich Yet: a professional earning a strong income, often $250,000 to $500,000 a year, who has not yet built lasting wealth.
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HENRYs typically earn salary and bonus, and sometimes RSUs, while carrying high costs: housing, childcare, education, and student debt. Their income is high enough that many credits and deductions phase out, but not high enough to need or access the structures wealthier families use. A large share of each raise goes to tax, which is why the gap between earning well and building wealth can feel wide.
Why it matters
HENRYs have the most to gain from planning early. Small, repeatable moves in how income is taxed, saved, and timed can change the long-term path from high income to real wealth.
FAQs
What income makes someone a HENRY?
There is no official line. A common range is $250,000 to $500,000 in household income, adjusted for local cost of living. In California, that income can feel more modest than the number suggests.
What tax moves matter most for a HENRY?
Maximizing pre-tax and tax-advantaged savings, checking whether bonus and RSU withholding is high enough, timing equity income, and understanding which credits phase out.
How does a HENRY become wealthy?
By converting income into assets consistently: a deliberate savings rate, tax-efficient investing, and a plan for equity and bonuses before they arrive.
Holding Period
A holding period is how long you own an asset before selling it, and it determines whether gain is taxed at short-term or long-term capital gains rates.
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Assets held for more than one year qualify for long-term rates of 0%, 15%, or 20%. Assets held a year or less are taxed as ordinary income. The clock generally starts the day after you acquire the asset: at vest for RSUs, at exercise for options, at purchase for stock, or at the 83(b) election date. Inherited assets are treated as long term automatically, and special holding periods apply to QSBS (three, four, or five years) and to opportunity zone investments.
Why it matters
The difference between short-term and long-term rates can be 17 percentage points or more at the federal level, and California adds its own tax on top. Waiting a few extra days or weeks to cross the one-year mark can be among the most valuable timing decisions an investor makes.
FAQs
When does my holding period start?
The day after you acquire the asset. For equity compensation, that is typically the vest or exercise date, not the grant date.
Does gifting an asset reset the holding period?
Generally no. A gift carries over the donor’s holding period, which is one reason gifting appreciated stock can be effective.
Do holding periods matter in California?
California taxes capital gains as ordinary income, so the lower federal long-term rate does not carry over. The holding period still matters for federal tax and for provisions such as QSBS.
I
ISOs
ISOs, or incentive stock options, let you buy company stock at a fixed price, and can receive favorable tax treatment if you meet specific holding rules.
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ISOs are available only to employees. There is no regular income tax when you exercise, but the spread between the exercise price and market value is an AMT adjustment that can trigger the alternative minimum tax. If you sell more than one year after exercise and two years after grant (a qualifying disposition), the gain is long-term capital gain. Selling sooner is a disqualifying disposition, and part of the gain becomes ordinary income. ISO treatment applies to only $100,000 of options first becoming exercisable in a year, measured at grant value.
Why it matters
ISOs reward patience but carry a real risk: you can owe AMT on gains you have not yet sold. If the stock falls after exercise, the tax can exceed the value of the shares. The timing of an exercise is one of the most consequential decisions in equity planning.
FAQs
What is the tax benefit of ISOs?
If you meet both holding periods, the entire gain can be taxed as long-term capital gain instead of ordinary income, and there is no ordinary income tax or payroll tax at exercise.
What is the ISO and AMT trap?
Exercising and holding creates an AMT adjustment on the spread. If the stock then declines, you may owe tax on value that no longer exists. California has its own AMT as well.
What happens if I leave my company?
ISOs generally must be exercised within 90 days of leaving to keep ISO status. After that window, they can lose that status or expire.
N
Nonqualified Deferred Compensation
Nonqualified deferred compensation (NQDC) is pay you earn now but agree to receive, and be taxed on, in a later year.
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NQDC is typically offered to executives and highly paid employees beyond the limits of a 401(k). You elect in advance to defer part of your salary or bonus, and the employer holds the promise to pay you later, often at retirement or on a set date. The deferred amount is generally not subject to income tax until paid, though Social Security and Medicare taxes may apply at vesting. Unlike a 401(k), NQDC is an unsecured promise, so your balance is exposed to the employer’s creditors.
Why it matters
NQDC can shift income into lower-tax years and allows savings above qualified-plan limits. It also concentrates risk in one employer and locks you into payout choices made years earlier. Those decisions need to be coordinated with the rest of your plan.
FAQs
Is NQDC the same as a 401(k)?
No. A 401(k) is a funded, protected account with annual limits. NQDC is an unfunded promise from your employer with no set limit, but with creditor risk and strict timing rules.
Can I change when I get paid?
Rarely. The tax code limits changes to payout elections, and a later change generally must push payment out at least five years. Make the original election with care.
What happens if my employer goes bankrupt?
As an unsecured creditor, you may lose some or all of the deferred balance. This is one of the main risks to weigh.
Nonqualified Deferred Compensation Plan
A nonqualified deferred compensation plan is the written agreement that spells out how much you defer, how it is credited, and when and how it is paid out.
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The plan document sets the election deadlines, the deemed investment options, vesting terms, and payout events, such as separation from service, a fixed date, disability, death, or a change in control. Payouts may be a lump sum or installments. The plan must comply with Section 409A of the tax code in both form and operation. Employers often use plans to retain key people, which is why vesting schedules and forfeiture terms may apply.
Why it matters
The details of the plan determine your tax outcome. A payout triggered by leaving your job, for example, could land in the same year as a stock sale or a move to another state. Reading the plan before you elect is one of the highest-value steps you can take.
FAQs
When do I have to decide how much to defer?
Generally before the year in which the pay is earned. Bonus deferrals may have separate deadlines, so check your plan’s calendar.
Can I take money out early?
Only for events the plan allows, such as an unforeseeable emergency, and only within the 409A rules. Early access is often not available.
Do other states tax my payout if I move?
Federal law can limit a state’s ability to tax certain deferred compensation paid in installments over at least ten years or for life. Timing the move and the payout together matters.
NSOs
NSOs, or nonqualified stock options, let you buy company stock at a fixed price, with the spread taxed as ordinary income when you exercise.
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NSOs can be granted to employees, directors, advisors, and contractors. At exercise, the difference between the market value and your exercise price is taxed as ordinary income, and for employees it is subject to payroll tax and withholding. Your basis becomes the market value at exercise, so any later gain or loss is capital. NSOs have no $100,000 limit and no AMT adjustment.
Why it matters
NSOs create a tax bill at exercise, even if you do not sell. A large exercise can push you into a higher bracket. Spreading exercises across tax years or aligning them with deductions is a classic timing strategy.
FAQs
How are NSOs different from ISOs?
NSOs are taxed as ordinary income at exercise. ISOs are not taxed at regular rates at exercise, but can trigger AMT, and may qualify for long-term capital gain on sale.
Can I spread out NSO exercises?
Often yes, subject to plan terms and expiration dates. Staging exercises can reduce how much income lands in any one year.
Can I convert ISOs to NSOs?
Exceeding the $100,000 limit makes the excess options NSOs automatically, and a disqualifying disposition changes the tax treatment of ISO shares.
O
Opportunity Zones
Opportunity zones are designated low-income communities where investing capital gains through a qualified opportunity fund can defer and potentially reduce tax on those gains.
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Full definition
You invest eligible capital gains in a qualified opportunity fund (QOF) within 180 days of realizing them. Under the original program, the deferred gain becomes taxable on December 31, 2026, with a reduced amount for longer holds. Gains on the QOF investment itself can be excluded after 10 years. The One Big Beautiful Bill Act (OBBBA) made the program permanent with rolling deferral periods for investments made after 2026. California does not conform to the federal opportunity zone rules.
Why it matters
A founder or investor with a large gain from a sale can use opportunity zones to defer tax and, over a long horizon, potentially exclude new appreciation. The investment must be sound on its own merits, because the tax benefit does not make a weak investment worthwhile.
FAQs
Can I invest any gain in an opportunity zone fund?
Generally capital gain, including gain from stock sales, within the 180-day window. Rules differ for gains passed through partnerships.
What is the 10-year benefit?
If you hold the QOF investment at least 10 years, appreciation on the investment itself may be excluded from federal tax.
What happens to gains deferred under the original program?
They are generally recognized at the end of 2026, so tax is due with the 2026 return unless the investment was sold earlier.
Q
QSBS
QSBS, or qualified small business stock, is stock in an eligible C corporation that can allow you to exclude up to 100% of your federal capital gain when you sell.
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Full definition
Section 1202 of the tax code excludes gain on qualified small business stock if the company is a domestic C corporation with gross assets of $75 million or less when the stock is issued (up from $50 million for stock issued after July 4, 2025). For that newer stock, the exclusion is 50% after three years, 75% after four, and 100% after five, capped per issuer at the greater of $15 million or ten times your basis. Stock issued earlier follows the older rules: five-year hold, 100% exclusion, and a $10 million cap. The business must also meet an active-business test, and stock generally must be acquired at original issuance.
Why it matters
QSBS can be the most valuable tax provision available to founders and early employees, potentially eliminating federal tax on eight-figure gains. It also requires planning early: entity type, holding period, and gifting to family or trusts can multiply the exclusion. California does not conform to QSBS, so state tax may still apply.
FAQs
Does my stock qualify as QSBS?
It must be stock in a domestic C corporation that met the asset and active-business tests when issued, acquired from the company. A qualified advisor should confirm eligibility before you rely on it.
Can I gift QSBS to multiply the exclusion?
Often yes. Each eligible taxpayer, including certain trusts, can have their own per-issuer cap, which makes pre-sale gifting a common planning move.
Does California tax QSBS gains?
Yes. California does not follow the federal exclusion, so gain excluded federally is generally still taxed by California.
R
RSUs
RSUs, or restricted stock units, are a promise of company shares that become yours as you vest, and they are taxed as ordinary income when they do.
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Full definition
When RSUs vest, the fair market value of the shares is added to your W-2 income, and your cost basis becomes that value. Employers usually withhold by selling or withholding some shares at a flat supplemental rate, 22% on most supplemental wages and 37% above $1 million. Private companies often use double-trigger RSUs that vest only after a time requirement and a liquidity event such as an IPO. Gains or losses after vest are capital gains or losses.
Why it matters
The flat withholding rate is often lower than the rate high earners actually owe, so a large vest can create an unexpected balance due. Knowing your vest dates lets you adjust withholding or set cash aside in advance.
FAQs
Why was I taxed on shares I haven’t sold?
Because vesting is the taxable event for RSUs. The shares count as income once they are yours, whether or not you sell them.
Is 22% withholding enough on RSUs?
Often not for high earners. The right amount depends on your total income and bracket, so it is worth estimating before a large vest.
What happens if I hold RSU shares after vesting?
Your cost basis is the value at vest. A sale within a year is a short-term gain or loss. After a year, it is long term.
T
Tax Drivers
Tax drivers are the factors that most influence how much tax you owe: the type of income, its timing, your filing status, where you live, and the accounts and entities you use.
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Full definition
Every household has a handful of tax drivers that account for most of the bill. Some are fixed for now, such as your state of residence. Many are controllable, such as when you exercise options or sell a position. For an RSU holder, the main drivers are vest dates and withholding. For a founder, they are the timing and structure of a sale. For a high earner building wealth, they are bracket management and where savings are held.
Why it matters
Planning energy is limited. Identifying your top few tax drivers tells you where effort pays off most and keeps you from chasing small deductions while a large exposure goes unmanaged.
FAQs
What is the biggest tax driver for most people?
For most equity holders and business owners, it is the timing and type of the income, because the same dollar can be taxed at very different rates depending on when and how it is recognized.
Can I change my tax drivers?
Some, yes. Timing, account location, and entity structure are often adjustable. Residency and income level are harder to change but can still be planned around.
How do I find my tax drivers?
Start with a full view of your income sources, equity, investments, and calendar. A Tax X-Ray is designed to do exactly that.
Tax Harvesting
Tax harvesting is the practice of selling investments at a loss to offset taxable gains, or realizing gains deliberately in low-income years.
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Full definition
Tax-loss harvesting sells positions below their cost to generate losses that offset capital gains dollar for dollar. If losses exceed gains, up to $3,000 can offset ordinary income each year, and the rest carries forward indefinitely. Gain harvesting does the opposite: in a year when your income is low, you sell appreciated assets to realize gains at a lower rate and reset your cost basis. Both approaches are limited by the wash-sale rule when you buy back the same investment.
Why it matters
Done consistently, harvesting turns market volatility into a tax asset. It is especially useful for people with concentrated stock gains or large equity events who need losses to offset them.
FAQs
How much loss can I deduct each year?
Losses offset capital gains without limit, then up to $3,000 of ordinary income. Unused losses carry forward to future years.
Does harvesting eliminate the tax?
It generally defers it. Selling at a loss lowers your cost basis in the replacement investment, so the tax effect shows up later unless you hold, donate, or pass the asset on.
When is the best time to harvest?
Opportunities can appear any time the market dips, not just in December. Year-round monitoring usually captures more than a single year-end review.
Tax Strategist
A tax strategist is a financial professional who plans your taxes ahead of time, timing income, deductions, and major decisions so you keep more of what you earn.
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Full definition
A tax preparer reports what already happened. A tax strategist works on what is coming. They review your income, equity, business, investments, and calendar, then recommend when to sell, exercise, defer, give, or restructure. The work is forward-looking and ongoing, and it is coordinated with your CPA, who files the return. At WealthQuant, tax strategy is the starting point of the financial plan, not an add-on.
Why it matters
Most of the tax you will pay over a lifetime is shaped by decisions made before the year ends, not by how the return is prepared. A vest, a bonus, a sale, or a move can change your bracket in a single day. A tax strategist spots those moments early, while you still have options.
FAQs
Is a tax strategist the same as a CPA?
No. A CPA prepares and files returns and keeps you compliant. A tax strategist focuses on planning ahead. The two work best together, and many clients have both.
When should I work with a tax strategist?
Before a major event: an equity vest or exercise, a business sale, a large bonus, a move, or any liquidity event. Planning early creates options that disappear once the year closes.
Do tax strategists only work with wealthy people?
No. Anyone whose income, equity, or business creates meaningful timing decisions can benefit, including high earners who are still building wealth.
Tax Strategy
Tax strategy is a proactive plan for managing when, where, and how your income is taxed so you legally pay less over time.
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Full definition
A tax strategy coordinates three levers. Timing is when income and deductions land. Character is whether income is taxed as ordinary income, capital gains, or not at all. Location is which account, entity, or state the income sits in. A good strategy is built around your calendar of vests, bonuses, sales, and life events, and it is revisited as your life and the tax law change.
Why it matters
For many high earners, taxes are the single largest lifetime expense, often larger than housing. Because the code rewards certain timing and structures, small planning choices compound. A written strategy replaces reacting to a bill in April with acting months ahead.
FAQs
Is tax strategy the same as tax avoidance?
Tax strategy uses provisions Congress wrote into the code, and it is documented and defensible. Tax evasion, which is illegal, is something else entirely.
How often should my tax strategy be updated?
At least once a year, and whenever something material changes: a vest, a new job, a sale, a move, or a law change such as the One Big Beautiful Bill Act (OBBBA).
What is the difference between tax strategy and tax preparation?
Preparation reports the past and meets filing deadlines. Strategy shapes the future and works before the year ends.
Tax X-Ray
A Tax X-Ray is a structured review of your income, equity, investments, and upcoming events that shows where tax is building up and what to do about it.
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Full definition
WealthQuant’s Tax X-Ray looks across the three taxes (income, capital gains, and estate) and maps them against your calendar. It surfaces exposures such as a large vest that will push you into a higher bracket, a concentrated stock position with a big embedded gain, or an estate that is outgrowing the exemption. The result is a prioritized picture of where planning will matter most, not a tax return.
Why it matters
Most people see their taxes in fragments. One professional sees income, another sees investments, and no one sees the whole. Hidden costs live in those gaps. A Tax X-Ray is a low-commitment way to see everything at once and decide what deserves attention first.
FAQs
What do I need to get a Tax X-Ray?
Your most recent tax return, equity grant or vesting statements, and a summary of your accounts. Approximate numbers are enough to start.
Is the Tax X-Ray free?
Yes. WealthQuant offers the Tax X-Ray at no cost as a first step.
Is a Tax X-Ray the same as a tax return review?
No. A return review looks backward at what was filed. A Tax X-Ray looks forward at what is coming and what can still be changed.
W
Wash-Sale Rule
The wash-sale rule disallows a loss on a sale if you buy the same or a substantially identical investment within 30 days before or after the sale.
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Full definition
The 61-day window covers 30 days before the sale, the sale date, and 30 days after. It applies across your taxable accounts, your spouse’s accounts, and your IRAs. If triggered, the loss is not deducted that year. Instead it is added to the cost basis of the replacement shares, so the benefit is postponed rather than lost. The rule applies to losses only, and RSU vests or ESPP purchases of the same stock inside the window can trigger it unexpectedly.
Why it matters
Equity holders are especially exposed. If you sell company stock at a loss and new shares vest within 30 days, the loss may be disallowed. Knowing your vest calendar before harvesting avoids a lost deduction.
FAQs
What counts as substantially identical?
The same security clearly counts, and the IRS has not defined the term beyond that. Similar funds from different providers are a gray area, so choose replacements carefully.
Does the wash-sale rule apply to my IRA?
Yes. Buying the same security in an IRA within the window can disallow the loss, and in that case the loss may be permanently lost.
Can RSU vesting trigger a wash sale?
Yes. New shares acquired through vesting inside the 61-day window count as purchases.
This glossary is provided by WealthQuant Advisors for educational purposes only and is not tax, legal, or investment advice. Tax laws change and their application depends on your circumstances. Consult a qualified professional before acting.
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