Glossary

A minimum waiting period between adopting or modifying a 10b5-1 plan and the first trade under that plan. 90 days for officers and directors, 30 days for other employees; new plans after a prior cycle require 120 days.

A prewritten trading plan that lets corporate insiders buy or sell company stock on an automated schedule, providing an affirmative defense against insider-trading claims under SEC Rule 10b5-1.

The flat 22% federal withholding rate that employers apply to supplemental wages (bonuses, RSU vests, NSO exercises) up to $1 million per employee per calendar year.

The mandatory flat 37% federal withholding rate on supplemental wages above $1 million per employee per calendar year. Employers cannot elect a lower rate even if the employee's marginal bracket is below 37%.

An employer-sponsored retirement account funded with pre-tax payroll deferrals. 2025 elective deferral limit is $23,500, with a $7,500 catch-up for age 50+ and an additional $11,250 catch-up for ages 60-63.

An independent third-party appraisal of a private company's common stock used to set option strike prices at fair market value, providing a safe harbor against Section 409A penalties.

A tax election to recognize income on restricted property at grant rather than at vest. Filed with the IRS within 30 days of the property transfer.

A vesting provision that accelerates equity only when two events both occur: a change of control and a qualifying termination of employment, usually within 12 to 24 months of closing.

A contract provision that vests some or all unvested equity on a single event, typically a change of control, without requiring a subsequent termination.

A 0.9% federal tax on wages and self-employment income above $200,000 single or $250,000 married. Withheld by employers once an individual's wages cross $200,000, regardless of filing status.

The original cost basis of an asset modified for subsequent tax events: wage income reported on RSU vest or NSO exercise, return of capital distributions, wash-sale disallowed losses, and step-up at inheritance.

Non-Roth, non-deductible employee contributions to a 401(k), made after income tax, that fill the gap between the elective deferral limit ($23,500 in 2025) and the all-sources limit ($70,000 in 2025).

A parallel federal tax system that disallows certain preferences and credits so high-income filers owe a minimum tax. For tech employees, ISO exercises are the most common trigger.

A federal credit for AMT paid in a prior year attributable to timing preferences such as ISO exercises. Recovers in later years when regular tax exceeds tentative minimum tax.

A formal written valuation by a qualified appraiser, required by the IRS for non-publicly traded property transferred by gift over $5,000 or by estate, to establish fair market value for tax reporting.

A mortgage program that uses a borrower's liquid assets as a proxy for income. Typically divides the asset balance by a number of months (often 84 or 120) to derive a qualifying monthly income figure.

The practice of placing different asset classes into the most tax-efficient account types: tax-inefficient assets (bonds, REITs) in pre-tax retirement accounts, tax-efficient equities in taxable brokerage or Roth.

A two-step maneuver that funds a Roth IRA when income exceeds the direct contribution limit: contribute to a non-deductible traditional IRA, then convert it to Roth. Subject to pro-rata rules on other pre-tax IRA balances.

The difference between the fair market value of shares at exercise and the strike price paid. For NSOs this is ordinary wage income; for ISOs it is an AMT preference item.

A measure of a portfolio's or security's sensitivity to overall market returns. A beta of 1.0 moves with the market; beta above 1.0 moves more; beta below 1.0 moves less.

A period during which company insiders cannot trade company stock, typically covering the weeks before an earnings release through a day or two after.

Net capital losses exceeding $3,000 in a tax year that carry forward indefinitely to offset future gains. The $3,000 annual offset against ordinary income continues until the carryover is exhausted.

An exercise method in which the broker fronts the strike cost and withholding, then immediately sells enough shares to cover those amounts, delivering the net shares or cash to the employee.

An irrevocable split-interest trust that pays income to the grantor or named beneficiaries for a term, with the remainder passing to charity. The grantor receives a charitable deduction for the present value of the remainder interest.

A vesting structure where no shares vest until a set service milestone, usually one year, after which a lump tranche vests and further vesting proceeds on a monthly or quarterly schedule.

An options strategy that combines a long put (downside protection) with a short call (capping upside) on a concentrated stock position, often structured at zero net cost.

The risk that an outsized portion of a portfolio is invested in a single company's stock. For tech employees, this is typically employer stock from RSUs, ESPP, or exercised options.

A statistical measure of how two investments move together, ranging from -1.0 (perfect opposite) to +1.0 (perfect co-movement). Low correlation between portfolio assets reduces overall volatility.

The amount attributed to an asset for tax purposes, usually the purchase price plus commissions and other acquisition costs. Determines the capital gain or loss on sale.

An options strategy where the holder of long stock sells call options against it, generating premium income in exchange for capping upside above the strike price.

A beneficiary's temporary right to withdraw a contribution to an irrevocable trust, usually 30 to 60 days. Converts an otherwise-future-interest gift into a present-interest gift that qualifies for the annual gift tax exclusion.

An investment strategy that replicates an index by owning the individual constituent securities in a separately managed account, enabling customization, tax-loss harvesting at the position level, and factor tilts.

A sale of ISO shares that fails the two-year-from-grant or one-year-from-exercise holding rules. The bargain element becomes ordinary wage income, and the AMT preference is eliminated for that lot.

A charitable giving vehicle sponsored by a public charity that accepts irrevocable donations, provides an immediate tax deduction, and allows the donor to advise distributions to operating charities over time.

Exercising stock options before they vest, using an 83(b) election to start the capital gains holding period at the exercise date.

The set of portfolios offering the highest expected return for each level of risk, derived from mean-variance optimization. Portfolios below the frontier are inefficient; portfolios above it are unattainable with the input assumptions.

A payroll-deduction plan that lets employees buy company stock at a discount, often 15%, with a lookback provision that prices the shares at the lower of offering-period start or purchase date.

The amount an individual can transfer during life or at death without triggering federal estate or gift tax. The 2026 exemption is $13.99 million per individual ($27.98 million per married couple), scheduled to sunset to approximately $7 million in 2026 absent legislation.

A voluntary federal or state tax payment made quarterly to cover tax liability not already withheld through payroll. Required when withholding is insufficient to meet safe harbor thresholds.

A private investment fund that pools concentrated single-stock positions from multiple contributors in exchange for units of a diversified portfolio. Contributions are tax-deferred under IRC Section 721.

A strategy of exercising stock options with cash and holding the resulting shares, rather than selling them. Starts the long-term capital gains clock and, for ISOs, the qualifying disposition holding period.

The time period during which a vested option can be exercised. Standard employment exercise windows run 10 years from grant, compressed to 90 days after termination unless the plan extends it.

The price a willing buyer and willing seller would agree to, used to set strike prices, RSU taxation, and exercise spreads. For private companies, FMV is established by a 409A valuation.

A limited partnership owned by family members, typically used to consolidate family assets under a general partner (often the parent) while transferring limited partnership interests to children at a valuation discount for lack of marketability and lack of control.

The IRS form used to compute and submit federal estimated tax payments. Provides vouchers for each quarterly deadline and a worksheet to project annual tax liability.

The IRS form employers file to report each ISO exercise. Shows the grant date, exercise date, strike price, and FMV at exercise, which are the inputs for AMT and basis tracking.

The IRS form employers issue to report each qualified ESPP purchase. Shows the offering date, purchase date, FMV on each, and the discount, which are the inputs for tax computation at future sale.

The IRS form used to compute Alternative Minimum Tax. Required whenever a filer has AMT preference items such as ISO exercises, high state tax deductions, or depreciation differences.

The IRS form used to report sales of capital assets, including stock, RSUs after vest, ISO shares, and ESPP shares. Totals flow into Schedule D for net capital gain or loss.

A private derivative contract that lets a holder of restricted or illiquid stock lock in cash today against future delivery of shares, typically used pre-IPO or during lock-up to hedge concentration.

A federal tax imposed in addition to gift or estate tax on transfers to beneficiaries two or more generations below the donor. Rate is 40%, with a separate exemption of $13.99 million per individual for 2025.

The amount an individual can gift to each recipient each calendar year without using any lifetime exemption or filing a gift tax return. For 2025 the annual exclusion is $19,000 per donor per recipient.

A vesting schedule that releases shares in equal or stepped increments over a set period, commonly monthly or quarterly after an initial cliff.

An irrevocable trust that pays the grantor a fixed annuity for a term of years. Any appreciation above the IRS Section 7520 rate passes to beneficiaries gift-tax free at term end.

An FDIC-insured savings account that pays a significantly higher interest rate than a traditional savings account, typically offered by online banks with low overhead. Rates currently range from 4% to 5% APY.

A tax-favored employee stock option governed by IRC Section 422. No regular federal income tax at exercise, but the spread is an AMT preference item. Long-term capital gains treatment is possible if holding periods are met.

An irrevocable trust designed so that the grantor remains the income tax owner (paying tax on trust earnings) while the trust assets are excluded from the grantor's taxable estate.

A trust that cannot be modified, amended, or revoked by the grantor after creation, except by court order or per the terms of the trust. Assets contributed are generally removed from the grantor's taxable estate.

A contractual restriction after an IPO or direct listing that prevents insiders from selling shares for a set period, typically 180 days.

Gain on an asset held more than one year. Taxed at federal rates of 0%, 15%, or 20% depending on income, plus the 3.8% NIIT at higher income levels.

A loan from a brokerage firm secured by securities in the account, which can be used to buy additional securities (purpose) or for non-investment purposes. Subject to Federal Reserve Regulation T and house margin rules.

An election under IRC Section 475(f) that lets qualifying traders treat their securities as marked-to-market at year-end. Converts capital gains and losses into ordinary gains and losses.

A strategy that funnels after-tax 401(k) contributions into a Roth IRA or Roth 401(k), adding tens of thousands of annual Roth space beyond the standard elective deferral limits.

A retirement projection technique that runs thousands of randomized market scenarios against a portfolio and spending plan, producing a success probability rather than a single deterministic outcome.

A debt security issued by a state, city, or local government. Interest is generally exempt from federal income tax, and from state tax in the issuer's state of residence.

A 3.8% federal tax on investment income for filers whose modified AGI exceeds $200,000 single or $250,000 married. Applies to interest, dividends, capital gains, rents, and passive business income.

A tax treatment for employer stock held inside a 401(k) that lets the account owner pay ordinary income tax on the cost basis at distribution and capital gains tax on the appreciation when the shares are later sold.

A mortgage that does not meet the Consumer Financial Protection Bureau's Qualified Mortgage (QM) standards. Typically used for borrowers with non-W-2 income, large equity positions, or recent employment changes.

A stock option that does not meet ISO requirements. The spread between FMV and strike is taxed as ordinary wage income at exercise, with payroll tax and supplemental withholding.

A state income tax return filed by a taxpayer who was not a resident of that state during the year but earned income sourced there. Required to pay source-state tax and document foreign-state tax for the resident credit.

An equity award that vests based on company performance metrics such as relative TSR, revenue, or operating margin. Payout is variable, typically 0% to 200% of target.

A cash-settled award that tracks the value of company shares. The participant never owns equity. Payout is taxed as ordinary wage income when distributed.

The time a departing employee has to exercise vested options before they expire. The ISO default is 90 days after termination; some companies offer extended windows of five to ten years.

C-corporation stock held more than five years that qualifies for up to 100% federal capital gains exclusion under IRC Section 1202, capped at the greater of $10 million or 10 times basis per issuer.

A sale of ISO shares that meets both holding tests: more than two years from grant and more than one year from exercise. Entire gain is long-term capital gain; no ordinary income at sale.

The practice of periodically buying and selling to restore a portfolio's asset-class weights to their target allocation. Typically done annually or when weights drift more than 5 percentage points.

A credit allowed by the taxpayer's resident state for income taxes paid to another state on the same income, preventing double state taxation.

A company promise to deliver shares of stock on a future vesting date. RSUs are taxed as ordinary wage income at vest, based on the share price that day, not at the grant date.

An employer-sponsored retirement account funded with post-tax payroll deferrals. Contributions offer no current deduction, but qualified distributions, including earnings, are federal and state tax-free after age 59 1/2 and five years.

A multi-year strategy of converting pre-tax retirement dollars to Roth in staged annual amounts sized to fit inside lower tax brackets, building future tax-free income and reducing future RMDs.

An individual retirement account funded with after-tax dollars. Qualified distributions of principal and earnings are tax-free after age 59 1/2 and a five-year clock. 2025 direct contribution limit is $7,000 ($8,000 age 50+), phased out at higher income.

A rule that prevents an underpayment penalty if total withholding plus estimated payments equals or exceeds 100% of the prior year's tax liability, or 110% for AGI above $150,000.

The percentage of a retirement portfolio that can be withdrawn in year one, adjusted for inflation in later years, with high probability of lasting 30 years. The classic benchmark is 4% based on the Trinity Study.

An exercise-and-immediate-sale transaction for stock options, typically broker-assisted, where all shares are sold at exercise to produce cash and cover taxes.

The IRS form that summarizes total short-term and long-term capital gains and losses from Form 8949, applies the loss netting rules, and produces the net capital gain flowing into Form 1040.

Private transactions in which existing shareholders of a private company sell shares to new buyers outside of a company-run tender. Prices often differ from 409A FMV and from the last preferred round.

An election to defer gain on QSBS held more than six months by reinvesting the proceeds into new QSBS within 60 days. Preserves the original holding period toward the five-year Section 1202 clock.

The IRC provision that creates the capital gains exclusion for Qualified Small Business Stock. Allows 100% federal exclusion on stock acquired after September 27, 2010 and held more than five years.

The per-issuer limit on QSBS gain excluded from federal tax: the greater of $10 million or 10 times the shareholder's adjusted basis in the stock, measured separately for each QSBS issuer.

The IRC section that imposes special valuation rules on certain transfers of interests in family-controlled entities. Designed to prevent estate tax 'freezes' that shift value to family members while the older generation retains preferred interests.

The IRC section governing nonqualified deferred compensation, including stock options priced below FMV. Violations trigger immediate income inclusion plus a 20% federal penalty and interest.

The IRC section that defines Incentive Stock Options and the conditions for preferential tax treatment, including the $100,000 annual vesting cap, 10-year term, employee-only eligibility, and holding period rules.

The IRC section governing the taxation of property transferred in connection with services. Establishes the default rule that restricted property is taxed as ordinary income at vest and the 83(b) election to accelerate to transfer.

The IRC section that lets an employer deduct the same amount an employee recognizes as income on a Section 83 property transfer, including RSU vests and NSO exercises.

A revolving line of credit collateralized by marketable securities held in a brokerage account. Offers quick liquidity at competitive rates without selling the underlying portfolio.

An automatic RSU or option mechanism where the company's stock plan administrator sells just enough vested shares to pay the employer's statutory tax withholding, delivering the remaining shares to the employee.

A simplified pension plan for self-employed individuals and small business owners. 2025 contribution limit is the lesser of 25% of net self-employment income or $70,000.

The risk that a portfolio experiences poor returns early in retirement, forcing withdrawals at low prices and permanently damaging the portfolio's long-term sustainability.

Gain on an asset held one year or less. Taxed at ordinary income rates, up to 37% federal plus state and NIIT, rather than preferential long-term capital gains rates.

A 401(k) plan for a business with no employees other than the owner and spouse. Combines elective deferrals up to $23,500 with employer profit sharing up to 25% of compensation, for a 2025 total limit of $70,000.

The doctrine that allows a state to tax income tied to services performed within its borders, regardless of the taxpayer's current residence. Drives multi-state equity compensation reporting.

A state's continued right to tax compensation earned while the taxpayer was a resident, even after the taxpayer has moved. Applies to deferred equity income such as RSU vests from pre-move grants.

The adjustment of an asset's cost basis to its fair market value at the owner's date of death. Eliminates capital gains tax on all appreciation that occurred during the decedent's lifetime.

A right to receive the appreciation in value of a set number of shares between grant date and exercise date, typically paid in stock or cash. Taxed as ordinary wage income at exercise.

The fixed price an option holder pays per share to exercise. Set at grant, typically equal to the FMV on the grant date to meet ISO rules and Section 409A safe harbor.

Wages paid in addition to regular wages, including bonuses, RSU vests, NSO exercises, severance, and commissions. Subject to flat supplemental federal withholding: 22% up to $1 million in a calendar year, 37% above.

The flat federal rate employers use to withhold income tax on supplemental wages such as bonuses, RSU vests, and NSO exercises. 22% on the first $1 million of supplemental wages per calendar year, 37% above.

Interest income that is not subject to federal income tax, most commonly interest on state and local government bonds. Reported on Form 1040 Line 2a but excluded from taxable income.

The practice of selling investments at a loss to generate capital losses, then reinvesting in a similar but not substantially identical security. Losses offset capital gains and up to $3,000 of ordinary income.

A company- or investor-organized offer to buy shares from existing holders at a fixed price during a defined window. For private tech employees, tender offers create a liquidity event for vested shares before IPO.

The tax computed under the AMT system before comparing against regular tax. If TMT exceeds regular tax, the excess is the AMT owed.

A trust established under the terms of a last will and testament, created and funded only at the grantor's death through probate.

An individual retirement account funded with deductible or nondeductible contributions. 2025 limit is $7,000 ($8,000 age 50+). Deductibility phases out for active participants in an employer plan at higher income.

A portfolio of Treasury bills with staggered maturity dates, typically 4, 8, 13, and 26 weeks. Provides high-yield, state-tax-free liquidity with regular maturities for cash needs.

A federal (and state) charge imposed when a taxpayer's withholding plus estimated payments falls short of the safe harbor. Computed as interest on each quarter's shortfall, currently 8% annualized federal.

A reduction in the appraised value of an interest that cannot be freely sold or does not control the underlying entity. Common in estate and gift valuations of private business and partnership interests.

A private derivative where the shareholder receives discounted cash up front against future variable share delivery between a floor and ceiling price. Lets concentrated holders monetize without triggering immediate capital gain.

An informational box on the W-2 that employers use to report equity compensation details, including RSU vesting amounts, NSO exercise income, and ESPP disqualifying disposition wages. Often labeled RSU, ESPP, or STK.

A sale at a loss followed by the purchase of substantially identical stock within 30 days before or after. The loss is disallowed and added to the basis of the replacement shares.

The method most states use to source equity compensation income across multiple states: the ratio of workdays in a state during the vesting period to total workdays in that same period.