Kestrel Bay Retirement Advisors's Guide to a Year-End Tax Checklist for RSUs, ESPP Lots and Options

What does one lot choice change in a December tax bill?

Take two lots that each raise the same $100,000 of cash. Sell one with $70,000 of basis and you realize a $30,000 gain. Sell one with $10,000 of basis and the gain is $90,000. Nothing else differs, only which lot the broker sends to market.

Now add a $12,000 loss harvested elsewhere and assume a 15% rate, for illustration. The first choice nets $18,000 of gain and costs $2,700. The second nets $78,000 and costs $11,700. That's a $9,000 gap from a single click.

Be honest about what that gap is. The big gain isn't erased, it stays inside the shares you still own, so the choice defers tax. It pays off most when it keeps you under a bracket edge or a Medicare premium threshold, and it's worth little if you'll be taxed at the same rate later anyway.

What belongs on a year-end checklist for RSUs and ESPP shares?

Six items, in date order, and each has an owner. Some are yours alone, some need payroll, your broker, a donor-advised fund sponsor or your CPA. Notice the table's third column: most delays happen at a handoff, not in the decision.

Check the RSU vest calendar first. A vest in December is income this year, and withholding on it is a flat rate, so look at both before you decide what to sell.

Step by step: the six dated tasks

The rule we apply before any December sale: price the tax on each lot. When two lots raise the same cash, the one with higher basis usually creates the smaller gain this year. That's the same habit Kestrel Bay Retirement Advisors follows before suggesting any change, estimating the tax first.

• Early November: download the lot report from the stock plan site and your broker. List purchase date, basis and gain or loss for every RSU and ESPP lot.
• Late November: ask payroll to raise your deferral toward $24,500. At 50 or older the catch-up of $8,000 brings the total to $32,500, and if last year's FICA wages topped $150,000 that catch-up has to go in as Roth.
• Early to mid December: place trades and harvest losses in funds you hold elsewhere. Don't buy the same security within 30 days. A December RSU vest can also trigger a wash sale if you sold that stock at a loss in the window.
• December: if you itemize, give appreciated shares to the donor-advised fund before the sponsor's cutoff. The gift must be complete by December 31.
• January 15: pay the fourth-quarter estimate. Paying 110% of last year's tax is the usual safe harbor when adjusted gross income is above $150,000, and 100% below that.

How does the list change with age and the size of your position?

Age and position size change the list more than most people expect. Between 50 and 59 the catch-up adds $8,000 of room. At 60 through 63 the higher $11,250 catch-up replaces it, which changes the December paycheck math.

Rafael, 55, plans to retire at 60 and holds a large ESPP stake. Medicare premiums use income from two years earlier, so sales at 55 through 58 don't feed his first premiums at 65, while sales at 63 do. That timing is a reason to realize more gain in his mid-fifties.

Size matters too. With under $50,000 in company stock, lot selection rarely moves the bill. With $650,000 of ESPP stock it can shift five figures of tax.

Myths about year-end tax moves, and what's true

Myth: a sale on December 31 counts for this year. Truth: check your broker's last trading day and cutoff, because settlement and plan-site delays vary.

Myth: RSU withholding means the tax is paid. Truth: it's a flat rate and can fall short of your real bracket, which is why the fourth-quarter estimate exists.

Myth: losses wipe out gains forever. Truth: net losses offset only $3,000 of ordinary income a year, and the excess carries forward. Another one: a donor-advised fund gift always cuts your tax. It doesn't unless you itemize.

If a blackout window or lockup bars you from selling in December, the lot and loss steps may not be possible this year. This checklist also leaves out ISO exercise planning, state tax and your CPA's review. Investing involves risk, including loss of principal.

Mistakes that cost money in December

The costliest is treating December 31 as every deadline. Payroll cutoffs come earlier, a missed change can leave several thousand dollars of 401(k) room unused, and you can't make it up in January.

Others: letting the broker's default method sell the lowest-basis lot, which in Rafael's case turns a $30,000 gain into $90,000. Exercising ISOs and holding past year end without checking AMT, since the spread is an AMT adjustment. And selling a fund at a loss, then rebuying it inside 30 days, which disallows the loss.

Questions to ask an advisor before December 1

Bring these to the call, along with your lot report.

• What does each lot I could sell cost me in tax this year and next, and which would you sell first?
• Is my fourth-quarter estimate based on the safe harbor or on this year's real numbers?
• Which year-end steps affect my future Medicare premiums, and when?
• Should the donor-advised fund gift use stock instead of cash, and do I itemize this year?

What to do this week, and where we can help

Download your lot report and mark the biggest gains and any losses. Check the payroll portal for paychecks left and the percentage that reaches $24,500 or $32,500. Put January 15 on your calendar, find last year's total tax, and send your CPA the lot list before mid-December.

If you'd like a second set of eyes, Kestrel Bay Retirement Advisors reviews lots, deferrals and estimates together over video or phone, and clients anywhere in the US can use the request form to ask for a first conversation.