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IMA Tax Policy Blog

Equity Compensation: 10 Tips to Get You Ready for Year End

by David Howell

Plante Moran is an IMA member public accounting and business advisory firm…

If your company issued or had restricted shares, options, phantom shares, SARs, profits interests, or other forms of equity compensation in 2017, you’ll need to get prepared for year-end audit, tax, and administration.

Here’s our list of the 10 key areas you should cover to get your company ready for year-end equity compensation planning:

  1. Approvals – Assemble documents for board approvals, grant agreements, changes to the plan, modifications on awards, and memos or reports.
  2. New awards – Update your files with information and records on recipients, type and number of units, vesting conditions, terms, waterfall rights, and 83(b) filings.
  3. IRS safe harbor compliance – Document the exercise price on stock options and threshold values for profits interests and SARs granted during the year.
  4. Vesting – Review vesting status for service, performance, or market conditions and identify the vested and unvested units for each recipient.
  5. Grant date fair value– Establish and document the grant date fair value (normally not $0) of units awarded for each recipient.
  6. Terminations – Identify any redemptions, forfeitures, terminations, payouts, clawbacks, or transactions.
  7. Cap table – Update your cap table with changes for recipients, units outstanding, exercise price, threshold value, vesting, and terminations for each grant date and year end.
  8. Accounting – Revise schedules for income statement expense and balance sheet liability on activity during the year.
  9. Valuation – Have a valuation analysis/report that is up to date as of each grant date and for year end that meets financial reporting and tax requirements.
  10. HR/Benefits/Payroll – Update records for status (K-1, W-2, or 1099), distributions, dividends, payroll data, withholding, benefits, and employment taxes.

Looking into these areas will help make the year end smooth and easy for your equity compensation plan, and you’ll avoid surprises, problems, and fire drills.


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