RSUs, ISOs, and ESPPs remain powerful wealth drivers in tech. The difference between ordinary outcomes and exceptional ones lies in disciplined tax strategy.

Equity compensation has become a defining feature of professional wealth in the technology sector. For many employees, restricted stock units, incentive stock options, and employee stock purchase plans represent not only supplemental income but also the potential for transformative financial outcomes. Yet the tax consequences are often misunderstood, and poor planning can erase much of the benefit.

Restricted stock units are the most common form of equity compensation in large technology companies. They are taxed as ordinary income at vesting, based on fair market value, regardless of whether shares are sold. The concentration of income at specific vesting dates often creates liquidity and tax challenges. Individuals who fail to plan for these events may face unnecessary withholding shortfalls, surprise balances due, or suboptimal sales that distort investment portfolios.

Incentive stock options offer the potential for preferential capital gains treatment, but they carry the additional risk of the alternative minimum tax. Without careful scenario modeling, employees may exercise ISOs only to discover significant AMT exposure. Timing strategies and partial exercises, combined with forward-looking tax projections, remain essential to preserving the benefit of ISOs without creating liquidity strain.

Employee stock purchase plans are frequently overlooked. The tax advantages of qualified ESPPs can be substantial, but only if holding requirements are met. Many participants sell immediately and forfeit the opportunity to convert the discount into long-term capital gains. Coordinating ESPP participation with broader equity compensation and cash flow needs is essential for maximizing their value.

The interplay between these equity vehicles and broader wealth management cannot be ignored. Concentration in employer stock, the timing of liquidity events, and the availability of preferential regimes such as qualified small business stock all require coordinated planning. Tax is not a mechanical afterthought but a central driver of wealth outcomes in equity compensation.

The lesson is clear. Equity compensation should be approached as a strategic asset class. Ordinary planning produces ordinary results. Those who approach it with precision, discipline, and foresight can achieve outcomes far beyond what the grant letter suggests.