Capital gains tax on RSUs, stock options, and ESPPs explained

Equity compensation is often taxed twice: once as ordinary income when you receive or exercise the award, and again as capital gain or loss when you sell the shares. The capital-gain piece is only the change in value after your cost basis is set. Mixing up basis with the company stock price at vest is a common way people overpay tax.

Restricted stock units (RSUs) are generally ordinary income at vest, equal to fair market value of the shares delivered. That value (minus any amount you paid) becomes your basis. Later sale is a capital gain or loss. If you sell immediately at vest, capital gain is often near zero; if you hold, the holding period for long-term treatment usually starts at vest.

Nonqualified stock options (NSOs) typically create ordinary income at exercise equal to the spread between fair market value and the strike. That spread plus the strike is usually your basis. Incentive stock options (ISOs) can avoid ordinary income at exercise for regular tax but may trigger AMT; a qualifying disposition after meeting holding tests can convert more of the spread into long-term capital gain.

Employee stock purchase plans (ESPPs) often have a bargain element reported as ordinary income. The rest of the sale proceeds versus basis is capital gain. Use the stocks calculator for the sale leg: enter basis as the buy price, sale price, quantity, vest or exercise date as the buy date, and the sell date. Confirm Form W-2 and 3921/3922 figures with a CPA.