StockOpter's Tax & Cash Flow Modeling Capabilities

General Info:

• This additional functionality in StockOpter.com allows users to create multi-year equity compensation tax and cashflow strategy models for clients. These models can be used to compare strategies and estimate taxes (i.e., Federal Ordinary Income v AMT). 
   
• This functionality can be activated for an additional token when new client/participant cases are created, or expired cases are reactivated.  It can also be activated for current client cases using the Add/Select Participants function under the Participants menu. The client case renewal date remains the same upon current case activation.
  
  
• Use the Select Tax Plan Participant function under the Participants menu or the Tax & Cash-Flow Modeling link on the data entry screens to access this functionality. You can also access client tax model pages from the Recent Participants panel on the Home page.
  
  
• The Participant, Company, Grant and Owned Share  Info must be entered for a Valuation and Risk Analysis  prior to doing Tax & Cashflow Modeling because this information is copied into the model and is NOT editable there.
  
  
• Additional Tax Assumptions are entered separately in the tax model.
  
  
• If the Grant, Vesting or Owned Share information in the tax model needs to be modified this is done using the valuation input screens and a new tax model for the client must be created or cloned.
  
  
• After creating the tax model and entering the tax, investment account and stock price assumptions, the Pre-Strategy Tax Calculations can be reviewed for accuracy prior to creating various equity compensation activity strategies.
  
  
  

Disclaimer: This StockOpter.com functionality contains certain formulas and assumptions about tax and financial calculations that Net Worth Strategies believes are appropriate for analyzing tax liability and financial returns. The tax calculations herein should be reviewed and confirmed with the client's CPA. Nothing in this functionality is intended as advice regarding the purchase or sale of securities or other financial instruments whose returns may be analyzed here.
 

Getting Started, you will need the following client data and client input:

• Their most recent tax return (e.g., Form 1040 including Schedules A & D and Forms  6251, 8801 and 4952 if applicable).
  
  
• Their most recent grant summary document with vesting schedule (this information is entered into StockOpter.com prior to creating tax models). It is often helpful to also get copies of the client's grant and plan documents in order fully understand the details of their equity compensation.
  
  
• Historical cost-basis information for any owned/long company shares (this information is entered into StockOpter.com prior to creating tax models).
  
  
• The client’s expectations for the company stock price growth rate.
  
  
• Current and estimated future year changes in income and tax-deductible expenses.
  
  
• The initial value of the Investment Account and their expectations for its performance (i.e., annual Dividend, capital gains distributions and appreciation rates) and plans for spending it.
  
  
  

The Process:

• Step 1: Start the tax planning process by creating a StockOpter.com valuation / risk analysis and determining what needs to be modeled.
   
  
  • This requires entering Participant, Company, Grant and Owned Share information.
  • Use the StockOpter dashboards to review the client’s equity compensation holdings and run what-ifs to identify planning scenarios. Note: it is important to identify the tax and cashflow issues you’d like to illustrate for the client before you start modeling strategies. This will save time and avoid analysis paralysis.
  • The multi-year tax planning capabilities of StockOpter enables you to model and compare the results of different exercise and sell strategies to help clients make strategic decisions.
  • For example, StockOpter can help determine: 1) whether to exercise and hold an ISO for the 1 year holding period or to disqualify it, 2) how many shares have to be exercised and sold to reach a diversification or cashflow target or 3) how many ISO shares can be exercised up to the AMT limit.
    
    
• Step 2: Use the Create New Model button on the Participant Tax Model tab.
   
  
  • Note: utilize the page HELP buttons for information and guidance.
  • Creating a tax model automatically transfers the client's Company, Grant and Owned Share detail.
  • Select the Assumption page and enter the tax model income and deduction detail on the Tax Model Input tab. Tips: Cursor over the input fields for data entry assistance and for simplicity limit entries to large amounts.
  • The Tax Model Entries tab displays a 10-year assumption table that can be modified for anticipated annual changes in filing status, income and expenses.
  • Enter tax details like carry forwards on the Tax Model Estimates tab. 
  • Enter the Tax Model Investment Account assumptions (e.g., dividend, capital gains, appreciation and loan rates). The investment account keeps track of the cashflow from all option exercise and stock sale activities and stock dividends. It includes the money to buy the stock and pay taxes from equity compensation activity.
    
    
• Step 3: Review the other pre-strategy assumption tabs for accuracy prior to creating strategies.
  
  
  • Company Info: stock price, dividend and growth rates (editable)
  • Grant Info and Vesting Schedules (not editable in the model)
  • Owned Share Info (not editable in the model)
  • Pre-Strategy Tax Calculations (prior to equity compensation activity). Tip: click the row links for descriptions.

• Step 4: Use the Strategies button to create new or modify existing diversification strategies.
  
  
  • Refer to the HELP on the Strategies page to manage them and to utilize the Clone function and the Goal Wizard.
  • Clicking a strategy Select link enables users to review or modify the Strategy Assumptions for the company stock prices and dividends for the selected strategy and years.
  • Use the ISO, NQSO, RSA and Owned Share Values tabs to enter the number of shares to exercise and/or sell for this strategy and to review the associated tax calculation results. 
  • The Investment Account tab allows you to customize the growth rate assumptions for the selected strategy and view the multi-year account detail.
  • Go to the Strategy Tax Calculations tab to review this detail online or to download it to Excel for sharing or printing.
     
• Step 5: Click the Tax Model Output button to view/download the following strategy summary tables & charts and to generate a report for the client.
  
  
  • Total Portfolio Value chart: For each selected strategy, this chart graphs the total value of the vested and unvested company stock and options plus the value of the investment account for each year in the model.
  • After-Tax Cash Flow chart: For each selected strategy this chart displays the after-tax cash flow from all equity compensation activity for each year in the model.
  • Case Summary tables: Shows the After-Tax Cash Flow, Total Portfolio Value and Diversification% values for each year of the selected strategies.
  • Total Diversification charts: Displays charts of the selected strategies illustrating the values of the Investment Account and the Value of Company Stock and Option for each year.
  • To Do Schedule tables: These tables summarize the exercise, sell and restricted stock vesting activities for each strategy and each year from the ISO, NQSO, RSA and Owned Share Values pages. 
  • Reports: This page enables users to create detailed Tax Plan Reports using customizable templates. Reports are limited to a maximum of 4 strategies and 4 tax years.