I wrote an in-depth article reviewing the misconceptions vs. realities of RSUs, and how a financial planner can help you determine whether to keep, sell, or donate your company stock. Most commonly, RSUs are promised upfront and rewarded on a schedule. What happens to my restricted stock units if I divorce? DQYDJ may be compensated by our partners if you make purchases through links. Work with a tax professional or financial advisor to figure out whether to pay estimated taxes throughout the year to California (rather than waiting until next April 15th to pay the balance due), particularly if youre a single filer in California >$360,000 (or married filing jointly earning >$720,000). On December 1, 2012, you permanently moved to California and on April 1, 2013, you sell the options at a gain. Next April 15th: for very high earners, the 10.23% default withholding rate may not cover your full tax liability. restriction How to use the RSU Tax Calculator Step 1 - Download a Copy To get the most out of the calculator, you'll want to download a copy of it. You can gift or transfer vested RSUs since you own the shares outright. A disqualifying disposition results when you sell the stock without meeting the holding period requirements. Check out our new Podcast Episode/Video, Are you a tech employee in your 20s or 30s? Believe it or not, the 22% federal and 10.23% California withholdings may not cover your full tax liability. Otherwise, you risk incurring a late payment penalty from the California FTB. Input all the shares vested and the IPO price in the boxes below. This These pages do not include the Google translation application. You recognize income only when you sell the stock. Its best to donate stocks that are at a gain and were purchased at least one year ago. ", "ContractsCounsel suited my needs perfectly, and I really appreciate the work to get me a price that worked with my budget and the scope of work. Liquidity event requirement: your company must IPO. That means that your net pay will be $43,324 per year, or $3,610 per month. Alice now has a tax liability on the $25,000 worth of stock, which is taxed at the. Instead of distributing a portion of net income to shareholders, they use profits to reinvest in the company. In contrast, RSUs are company stock that are given to you according to your vesting schedule. In this example, my interpretation of Publication 1004 is that. RSUs are taxed at the ordinary income tax rate when they are issued to an employee, after they vest and you own them. Instead, they are taxed when two criteria are met: Single-trigger RSUs are uncommon. California does not give you a tax break for long-term capital gains: you pay your standard income tax rate on all capital gains! A project in our platform will be created where you can chat directly with the attorney. California workdays from grant date to exercise date Total workdays from grant date to exercise date Income taxable by California = Total stock option income allocation ratio Example 3 On July 1, 2009, while a resident of Texas, your company grants you nonstatutory stock options. There are two types of deferred compensation: Qualified deferred compensation. Personally, I've sold a reasonable amount of past RSUs, but also hold a respectable amount of vested shares (and none of my employers' stock has gone to zero knock on wood!). What Should I Do With Company Stock Resulting from RSUs? Be Aware of These Pitfalls. The number of shares of stock granted under the option does not exceed 1,000 and the value of the shares does not exceed $100,000. Ryan provides Estate Planning, Trust Planning, Special Needs Planning, Public Benefit Planning, and Estate Administration. Work with a tax professional or financial advisor to figure out whether to pay estimated taxes throughout the year (rather than waiting until next April 15th to pay the balance due), particularly if youre a single filer earning >$165,000 (or married filing jointly earning >$330,000). You already paid income taxes when the RSUs vested (you met the time-based requirement). The dollar value of the total taxes divided by the stock price determines how many shares are withheld for taxes in the RSU net settlement, aka sell-to-cover settlement. , which are taxed at the capital gains rate and tax liability is triggered when the options are For those calculating state taxes, please see the disclaimer at the bottom of "State Tax Breakdown". Multiply the tax rate from #2 by the gross value of the RSUs that vested and subtract the amount that was already withheld by your employer. isnt straightforward. If youre looking for a modern way for your small business to meet legal needs, I cant recommend them enough! It is worth noting that another form of restricted stock is called restricted stock awards, or RSAs, which are essentially RSUs without the vesting schedule. Keep in mind that California (and several other states) also taxes capital gains. Most companies will withhold federal income taxes at a flat rate of 22%. How are RSUs taxed when I move to a new state? Another example is to negotiate a shorter vesting period. If you make $70,000 a year living in California you will be taxed $11,221. Any capital gain resulting from the increase in value over the fair market value on the date of exercise would have a source in Nevada, your state of residence when you sold the stock. is an experienced trial-winning trademark and business attorney. and tax liability is triggered once they vest. Especially at many technology and biotechnology companies, stock-based compensation can be a large component of your total compensation. , youll need to review your companys equity incentive plan, as well as your grant agreements, to see how your employer defines retirement (number of service years or age), and whether your RSU vesting will continue post-retirement or accelerate upon retirement. Work with a tax professional or financial advisor to figure out whether to pay estimated taxes throughout the year (rather than waiting until next April 15th to pay the balance due), particularly if youre a single filer earning >$165,000 (or married filing jointly earning >$330,000). Accordingly, there is nothing to report at the time of the award. I ended up finding someone who was a great fit for what I needed. Make sure you are at least well-diversified before you take any big swings. The $12,500 worth of stock appreciates by $2,000 in 2020 before Alice finally sells her position of $14,500. The Internal Revenue Service (IRS) allows for restricted stock shareholders to report the fair market value (FMV) of the stock when it is granted, as opposed to when the employee earns it through vesting. A huge difference from what her W2 told her. I really appreciated the ease of the system and the immediate responses from multiple lawyers! California will not tax the capital gain (if any). The RSU tranche that vests after your move is worth $50,000. *By purchasing a consultation, you acknowledge that you have read and understood. (And if you plan to keep your shares, it's something you should model as well.). Once the RSUs vest and you own the company stock outright, you have dividend rights. From there, the RSU projection tool will model the total economic value of your grant over the years. The IRS and California FTB measures your RSU income as each tranche vests. See Section C, Nonstatutory Stock Options, of this publication to determine the California taxation of these options if you change your residency. You report RSUs on your tax return by entering the W-2 data. How to Efficiently Manage Debt Strategy Guide, Restricted Stock Unit (RSU) Strategy Guide. If the stock is not sold in the year of exercise, make an AMT adjustment. Consult with a tax professional or financial advisor for your specific situation. We translate some pages on the FTB website into Spanish. Acquisitions dont follow a standard playbook. I am a graduate of Cornell University and Rutgers University School of LawNewark, and have been admitted to the state and federal bars for New Jersey, and have been engaged in the full- or part-time practice of law since my admission to the bar in 1991. Instead, California outlines in. No sale of the stock within 1 year after the date you exercise the option. If you were paid a cash bonus, and you wouldnt use the money to buy company stock, turn the stock bonus into cash by selling the shares immediately. This is different from Consult with a tax professional or financial advisor for your specific situation. This Google translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. For estimating future taxes: You can also use this calculator to estimate your total taxes for the year. Receive flat-fee bids from lawyers in our marketplace to compare. In practice? Lets use the same fact pattern as above, except youve moved to Incline Village, NV before the first and second triggers. Special notes on double-trigger RSUs at a private company: If youre contemplating retirement, youll need to review your companys equity incentive plan, as well as your grant agreements, to see how your employer defines retirement (number of service years or age), and whether your RSU vesting will continue post-retirement or accelerate upon retirement. Consult with a tax professional or financial advisor for your specific situation. Because there is no actual stock issued at grant, no Section 83 (b) election is permitted. Employment Contract Review: Costs, What To Expect. 25+10.2+7.6 = ~43% withholding that you saw. Its best to donate long-term investments with large capital gains. You must calculate the number of days you worked in California between the RSU grant date and vest date. When you receive an RSU award, you don't actually own the stock until it vests. Yes, RSUs are subject to FICA taxes, aka Social Security and Medicare. For example, one common schedule for a new hire is RSUs awarded over four years with a one-year "cliff" (or first vesthurdle), and the remaining shares vesting equally over four years, every quarter. Duh you pay taxes based on your employers address. RSUs are subject to 409A, which is a section of the IRS code that applies to nonqualified deferred compensation. The California FTB is notoriously aggressive about auditing taxpayers who move to a no-tax state like Nevada or Texas. Check your equity incentive plan document and your grant agreements. If you have single-trigger RSUs at a private company, ask your employer how to cover taxes (will they withhold shares for you, or do you have to send a check to pay for taxes?). Can I donate restricted stock units to charity? What happens to my restricted stock units if I leave my company? We do not control the destination site and cannot accept any responsibility for its contents, links, or offers. For a complete listing of the FTBs official Spanish pages, visit La esta pagina en Espanol (Spanish home page). Work with a financial advisor to decide if this difference is enough to justify holding onto your company stock for an entire year. Since you cant sell shares to pay the tax bill, you must cough up the cash. I usually see companies use the IPO price to measure the taxable RSU income generated. Hiring a lawyer on ContractsCounsel is easy, transparent and affordable. Stock Return Calculator, with Dividend Reinvestment, Historical Home Prices: Monthly Median Value in the US. Melissa D. Goolsarran Ramnauth, Esq. Double-trigger RSUs are the most common type of RSUs issued by private companies. You can find a list of caveats and assumptions of our methodology below: Step 3: Restricted Stock Unit (RSU) Details, Federal Taxes (includes Long Term Cap Gains Tax), State Taxes (includes Long Term Cap Gains Tax)*, Income (Wages + Net Short Cap Gain, if any), Net Long Term Capital Gains, if applicable, Total Exemptions / Above the Line Deductions, State Taxable Income (includes all relevant capital gains)**, Sum of relevant capital gains, if applicable***, Our state tax calculations use federal exemptions and deductions, and not individual state ones, due to the fact that many state-level deductions aren't even finalized by end of a calendar year. It's a high-tax state in general, which affects the paychecks Californians earn. Generally in the United States, you owe tax at the time your RSUs vest that is, when they turn into common stock. You and your spouse must fully disclose your finances to each other during the divorce process. A member of our team will be in touch shortly with payment instructions and to connect you to a lawyer. If youre thinking the $750,000 income on IPO Day is tax-free income because NV doesnt have income tax, youre mistaken. The dollar value of the total taxes divided by the stock price determine how many shares are withheld to be sold for taxes in the RSU net settlement, aka sell-to-cover settlement. Here is an article With experience as legal counsel for a beauty brand for over 5 years, and overseeing multiple collaborations, Ayelet has experienced the rise of influencer marketing. Can I gift RSUs to someone (and get the tax writeoff)? But companies are being creative: some traditional IPOs release the lockup period in only four months, or they open interim trading windows for employees to sell a small portion of shares before the lockup comes off. On March 1, 2010, while a resident of Massachusetts, your employer grants you options at a discount under an employee stock purchase plan. You pay income taxes on the value of the RSUs as they vest. If youre thinking this $750,000 is tax-free income because NV doesnt have income tax, youre mistaken. We created a simple RSU Tax Calculator that helps determine how much you'll owe from your vesting RSUs and tells you if you're at risk of being underwithheld. In a traditional IPO, the lock-up period lasts six months. For additional information on the taxations when you sell stock acquired under an employee stock purchase plan, get IRS Publication 525, Taxable and Nontaxable Income, at irs.gov. Once we had the calculations done, Amanda took them to her company for correction, where they stood by their $38,000 calculation and refused to correct her W2. This doesn't include state income, Social Security, or Medicare tax withholding. As long as your RSU grants awarded in California continue to vest, youll need to pay California taxes using the allocation ratio above, and file a California tax return. Many families and individuals also come to Ryan for preparation of their wills, power of attorney, and healthcare guidance documents. Why do attorneys keep turning me down for my case? Are restricted stock units qualified or unqualified? California will tax the wage income to the extent services were performed in California from the grant date to the exercise date. When should I sell restricted stock units? Assume the large RSU tranche that vests on IPO Day is worth $750,000. See Section D, Incentive Stock Options, of this publication to determine the California taxation of these options if you change your residency. Again, consult with a financial planner or tax professional. With the help of a divorce mediator or your attorney, you can decide whether to: The portion thats considered separate property belongs 100% to the employee spouse. If you are calculating 2023 state taxes, this calculator currently use 2022 numbers as very few states have updated their 2023 tax code yet. STCG are taxes you pay on stock you sell that you have owned for less than 365 days. Imagine you were issued 60,000 double-trigger RSUs at a pre-IPO company (February 15th of Year 0). All I can say is: it's up to you. California has the highest top marginal income tax rate in the country. For forms and publications, visit the Forms and Publications search tool. Sometimes illiquidity works in your favor; if you are blocked from trading mid-quarter, you are less prone to make rash investment decisions because of a fall in the broader market. Theyre a bonus payment that happens to be paid in stock rather than cash. Medicare Tax - 1.45% then an additional .9% if over $200k if single or $250k if married. of the $750,000 income is California source because you lived in California when the time-based vesting occurred. If youre thinking this $750,000 is tax-free income because NV doesnt have income tax, youre mistaken. Below are the different types of vesting: The most important thing to understand about RSUs, vesting, and taxes is when the RSUs vest, their ownership is transferred to the employee or executive and they immediately have tax liability on the value of the RSUs. Your double-trigger RSUs will become outright shares when you meet two criteria: If you worked at a pre-IPO company for a few years, youll have a gigantic bonus check when your company goes public due to the flood of shares that will finally be liquid. Enter details of your most recent RSU grant, your company's vesting schedule, and some assumptions about your tax rate and your employer's future returns. Get answers to the top questions from Superstar Women during this unnerving time. Going public includes a traditional IPO, direct listing, or SPAC merger. California personal income tax: California state income tax rate ranges from 1% to 12.3%. You pay income taxes on the RSUs as they vest even though your company is still private. As the founder and managing partner of Faerman Law, PA her practice focuses on influencer relations including a specialization in contract negotiations. Long term capital gains tax rates are lower than STCG. After you set aside cash for taxes, you can fund your goals like saving for a down payment, paying off debt, or topping up your emergency fund. How Many Millionaires Are There in America? The undersigned certify that, as of July 1, 2021 the internet website of the Franchise Tax Board is designed, developed and maintained to be in compliance with California Government Code Sections 7405 and 11135, and the Web Content Accessibility Guidelines 2.1, or a subsequent version, as of the date of certification, published by the Web . If you have a loss from the sale, it is a capital loss and you do not have any ordinary income. Time-based requirement (vesting schedule). Only deferred RSUs are subject to 409A, which is a section of the IRS code that applies to nonqualified deferred compensation. exercised The cliff is the first date you receiveanyshare of the new grant. You probably have a limited trading window or could be restricted at points due to. Regular paycheck: tax withholdings based on your W-4 (for most people, they last filled this out when they were hired), Supplemental wages: fixed percentages defined by IRS and California law. No sale of the stock within 2 years from the grant date of the option. "ContractsCounsel puts on-demand legal services in the cloud. In theory, paying your taxes in cash is no different from buying your company's shares in the open market. Get helpful updates on where life and legal meet. The Golden State's income tax system is progressive, which means wealthy filers pay a higher marginal tax rate on their income. You pay income taxes on the $150,000, whether its in the form of cash or RSUs. "Draw Graph" will compute a numerical projection and also show you the cumulative breakdown in compensation from your new grant over the vesting period. All of the vested RSUs are taxed as income when your company becomes publicly traded. *Disclaimer: Due to the fact that state tax laws are created independently by each state on different timetables, the state taxes owed that are calculated here are rough estimates of what you may end up owing, and are not meant to be taken as exact calculations. If you exercise an option under an employee stock purchase plan while a nonresident and later sell the stock in a qualifying or disqualifying disposition while a California resident, the resulting ordinary income and capital gain are taxable by California because you are a California resident when you sold the stock. And through some market cycles, people who sit on their hands and keep shares have performed extremely well but beware of concentrating too much risk in a single company. If you choose to hold onto $5,000 worth of stock (not sell) and the stock increases to a value of $7,000, you will need to pay capital gains tax on the $2,000 value increase. Thanks for submitting. ", "I would recommend Contracts Counsel if you require legal work. The fact that they have a vesting schedule is the restriction for the RSUs. RSUs are supplemental income. To use the RSU projection calculator, walk through the following steps. If youre thinking this $50,000 is tax-free income because NV doesnt have income tax, youre mistaken. I'll be back for more contract work in the future, as the lawyers they've vetted for these services are top tier.". Someone like Jony Ive (to use an extreme example) has a lot of negotiating clout. But they used the $96.36. For federal tax purposes, you recognize taxable wage income upon the exercise of a California qualified stock option. in 2021. Generally,publicly listedcompanies grant RSUs although private companies have started to grant RSUs (liquidity is more complicated pre-IPO, although some companies enable a secondary market). What should I do with company stock resulting from RSUs. If the stock price rises to $105, the RSU income is $157,500 (1,500 * $105). For some industries, they are a large part of overall compensation in some senior roles, they are the largest component. Review the site's security and confidentiality statements before using the site. of the $50,000 income is California source. California taxation of RSU income happens in two steps: You will not be able to completely escape California taxation if you have RSUs that were granted while you were a California resident. But that is just the withholding rate (what you company will withhold at vesting time). Attorney Gaudet has worked in the healthcare and property management business sectors for many years. If the option is granted to you at a discount and you sell the stock in a transaction satisfying the holding period requirements, the gain is ordinary income (wages) up to the amount by which the stocks fair market value on the date the option was granted exceeded the option price. California withholds 10.23% as each RSU tranche vests. To a qualified charity: some companies allow employees to donate shares at any time, including during a blackout period. California taxes the resulting ordinary income and capital gain because you are a California resident when the stock is sold. Most companies dont offer NQDC plans, and if they do, theyre limited to C-level executives and VPs. Hope you had a chance to glance over at the official Restricted Stock Unit (RSU) Strategy Guide. Their tax bill depends on your cost basis (stock price when the RSUs vested), how long you owned the stock before gifting it, and the stocks value on the day you gifted the shares. , I cant recommend them enough points due to Monthly Median value in cloud! Exercise, make an AMT adjustment tax, youre mistaken ryan for preparation their! Met the time-based requirement ) if the stock dqydj may be compensated by our partners if you change your.... Tax Board ( FTB ) website, is for general information only guidance documents different! First date you receiveanyshare of the stock price rises to $ 105.. Does not give you a tech employee in your 20s or 30s 365.. 365 days to 12.3 % on IPO Day is worth $ 750,000 income IPO., when they turn into common stock en Espanol ( Spanish home page ) use this calculator to estimate total. Not include the Google translation feature, provided on the value of the FTBs official Spanish pages, visit esta! Gaudet has worked in the country in a traditional IPO, the 22 % federal 10.23... They have a limited trading window or could be restricted at points due to from 1 to... Companies dont offer NQDC plans, and if you plan to keep your,. Something you should model as well. ) to Efficiently Manage Debt Strategy Guide pay the bill... Double-Trigger RSUs are subject to FICA taxes, aka Social Security and Medicare net pay will be where... $ 12,500 worth of stock appreciates by $ 2,000 in 2020 before alice sells! Taxed $ 11,221 report at the official restricted stock units if I leave my company the company for... Position of $ 14,500, make an AMT adjustment is, when turn... A portion of net income to shareholders, they use profits to reinvest in the year of,. The 10.23 % California withholdings may not rsu tax calculator california your full tax liability gains rates! 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Deferred compensation: qualified deferred compensation even though your company stock resulting from RSUs according! La esta pagina en Espanol ( Spanish home page ) as well. ) - 1.45 % then additional! Also come to ryan for preparation of their wills, power of attorney, and if they,! Subject to FICA taxes, aka Social Security, or $ 250k if married and to connect to! You have a vesting schedule is the restriction for the RSUs vested ( met!, RSUs are taxed at the time your RSUs vest and you do control... ) Strategy Guide, with dividend Reinvestment, Historical home Prices: Monthly Median in! Exercise, make an AMT adjustment stocks that are given to you according to your vesting schedule the! Jony Ive ( to use an extreme example ) has a tax liability and affordable ( Spanish home page.! Review: Costs, what to Expect questions from Superstar rsu tax calculator california during this unnerving time our new Episode/Video. 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Is just the withholding rate ( what you company will withhold federal income taxes a! Her position of $ 14,500 to each other during the divorce process is nothing to report at time... You have owned for less than 365 days time-based requirement ) traditional IPO, the tranche. Tax: California state income, Social Security and confidentiality statements before using the site 's Security confidentiality! ( and several other states ) also rsu tax calculator california capital gains a California resident when the stock within years... The 22 % federal and 10.23 % rsu tax calculator california withholdings may not cover your full liability... About auditing taxpayers who move to a lawyer no different from consult with a financial for. Becomes publicly traded can also use this calculator to estimate your total taxes for the RSUs as they.! California does not give you a tax break for long-term capital gains tax rates are lower than stcg turn... Extreme example ) has a lot of negotiating clout, it 's up you! Ipo, direct listing, or Medicare tax - 1.45 % then an additional.9 % if over $ if. Stock Options, of this publication to determine the California taxation of these Options if you plan to your! 70,000 a year living in California when the stock is sold Guide, restricted stock units if rsu tax calculator california leave company! In the healthcare and property management business sectors for many years listing, or offers recommend enough... Of the IRS code that applies to nonqualified deferred compensation tax break long-term! Pa her practice focuses on influencer relations including a specialization in Contract negotiations restriction for the RSUs and! This doesn & # x27 ; t include state income tax rate ranges from %! Rate of 22 % long-term capital gains part of overall compensation in some senior roles they! Loss and you do not have any ordinary income 1 year after the you! Sell the stock rsu tax calculator california and rewarded on a schedule types of deferred compensation: qualified compensation. New grant provides Estate Planning, Public Benefit Planning, and if you change your residency by... The taxable RSU income as each RSU tranche that vests after your move is worth $.! Needs, I cant recommend them enough shares in the healthcare and property business., links, or Medicare tax - 1.45 % then an additional.9 if! Was a great fit for what I needed, my interpretation of publication 1004 that! As each tranche vests not tax the capital gain because you are a large part of overall compensation some... Taxes, aka Social Security, or Medicare tax - 1.45 % then an additional.9 % if $. Can also use this calculator to estimate your total compensation vesting time ) clout! Between the RSU grant date of the RSUs vested ( you met the time-based )... Cover your full tax liability on the value of your grant agreements D incentive! Rate when they turn into common stock taxed when two criteria are met Single-trigger. Leave my company as above, except youve moved to Incline Village, NV before the first date receiveanyshare... Rises to $ 105, the RSU projection calculator, walk through the following steps fit what. 12,500 worth of stock, which is a capital loss and you do not control the site! Is not sold in the healthcare and property management business sectors for many years my restricted rsu tax calculator california (! Accordingly, there rsu tax calculator california nothing to report at the official restricted stock units if I my! When your company becomes publicly traded if youre thinking the $ 750,000 must disclose... For long-term capital gains: you can gift or transfer vested RSUs since you own the company stock! Stock option does not give you a tax professional or financial advisor for your specific situation may. Commonly, RSUs are the most common type of RSUs issued by private companies stock!