Equity Compensation: 2026 Foundations

If your compensation includes equity, you’re managing something most personal-finance advice doesn’t address well: an asset that’s illiquid until it isn’t, taxed differently depending on its form, and tied directly to the fortunes of a single company: your employer.

The Four Main Forms, Briefly

•  Incentive Stock Options (ISOs) - Can qualify for favorable long-term capital gains treatment if holding requirements are met, but exercising and holding can trigger Alternative Minimum Tax (AMT) liability.

•  Non-Qualified Stock Options (NSOs) - Taxed as ordinary income at exercise on the spread between grant price and fair market value, which makes exercise timing and cash flow planning especially important.

•   Restricted Stock Units (RSUs) - Taxed as ordinary income at vesting, regardless of whether shares are sold, which often creates a concentrated position that needs a deliberate diversification plan.

•   Employee Stock Purchase Plans (ESPPs) - Offer a real purchase discount, but whether a sale is a “qualifying” or “disqualifying” disposition changes the tax treatment meaningfully.

The AMT Number Worth Knowing for 2026

For ISO holders specifically, the Alternative Minimum Tax is the detail that most often catches people off guard. For 2026, the AMT exemption is $90,100 for single filers and $140,200 for married filing jointly, with the exemption beginning to phase out at $500,000 of AMT income for single filers and $1,000,000 for married filing jointly. Exercising a meaningful number of ISOs and holding the shares can push AMT income well past these thresholds in the exercise year. This often creates a tax liability that becomes due before any shares have been sold to cover the cost.

Where the Real Planning Happens

•   Exercise & Sale Timing - Coordinating when to exercise, hold, or sell to manage tax exposure, spread AMT impact across tax years where possible, and avoid unnecessary surprises.

•   The 83(b) Election - For qualifying early-exercise situations, this election must be filed within 30 days of grant. There’s no extension and no do-over, miss the window, and the opportunity is gone permanently.

•   Concentration Risk - Vested equity that isn’t diversified means your investment portfolio and your paycheck are exposed to the same single company. A deliberate diversification plan, not a single all-at-once sale, is usually the more disciplined path.

•   Cash Flow Coordination - Exercise costs and resulting tax liabilities can be projected well in advance, helping to prevent hasty decisions when a tax bill or exercise deadline arrives.

Why This Needs to Be Revisited, Not Set Once

Grants vest on their own schedule, tax law shifts, and your own goals change as your equity (and your company) matures. A plan built around a single grant, in a single year, tends not to hold up as the picture gets more complex, which is exactly why this is a foundation to revisit, not a one-time decision.

This material is for informational purposes only and does not constitute tax, legal, or investment advice. SKP Wealth does not provide tax or legal advice. AMT figures are current as of 2026 and subject to annual adjustment. Please consult your own tax or legal professionals regarding your specific situation before making any exercise or sale decisions. See our full Disclaimer.