It’s Time to Start Planning for Year-End

Even though it is only September, as the end of the year quickly approaches and we head into tax reporting season, now is a good time to touch base with departments you work with throughout the year to review procedures and plan for the coming year. Here are a few of the groups you might want to meet with. Looks like it’s going to be a busy few months.

Payroll

Schedule a meeting with payroll to kick off your tax reporting process. A few items for the meeting agenda include reviewing W-2 reporting procedures for various stock-plan transactions, reviewing tax-rate and limit changes for the upcoming year (expected in mid-October), and reviewing current procedures—what’s working and what isn’t working.

Here are some great NASPP resources to help prepare for this meeting:

• Form W-2 Reporting Checklist
• FAQs on tax reporting for restricted stock and units, stock options, and ESPPs
• Tax Reporting Guide for Stock Plan Transactions

And check out my video tour of how equity awards are included in Form W-2.

Accounts Payable

Forms 1099-NEC and 1099-MISC are typically prepared by accounts payable. If you grant equity to outside directors and other nonemployees, it’s a good idea to meet with this group to ensure that their taxable stock-plan transactions for the year will be reported appropriately. Ditto for any taxable transactions that occurred after the death of an employee or subsequent to the transfer of options/awards pursuant to divorce.

Reminder: This year’s forms will have to be filed on the IRS’s new IRIS platform (see discussion below relating to Section 6039 returns).

Accounting/Finance

For calendar year-end companies that haven’t done so since last year, now is a good time to review your valuation assumptions (volatility, dividend yield, interest rates, and expected life) for stock-option grants. It’s also a good time to revisit the expected forfeiture rate applied to options and awards if your company applies a forfeiture estimate to expense accruals. Set up a meeting with accounting/finance to have a conversation about this.

If you’ve had unusual transactions occur during the year (e.g., acceleration of vesting, option exchange programs, other option/award modifications), review how these transactions are accounted for as well. You don’t want any surprises when your auditors review your financial reports.

Legal/Finance

Administrators at calendar year-end companies should also schedule a meeting with the team responsible for preparing the company’s Form 10-K and proxy-solicitation statements to ascertain what your contributions will need to be. Reviewing last year’s statements to remind yourself of the information included relating to stock compensation can be a good preparatory step for this meeting.

No time like the present to get started on all the valuations you’ll need for your pay-vs-performance disclosures (or, even better, meet with the consultant who will be preparing the valuations for you).

You’ll also want to review the number of shares available in your stock plans, expected share usage for the next two years, and plan expiration dates, so you’ll know if a shareholder proposal relating to your stock plans is necessary. Here is a sample spreadsheet that can be used to forecast your share usage.

Human Resources

Review your current grant guidelines with human resources to determine if any tweaking is necessary and to find out if HR has planned any changes to your equity programs for the coming year.

Forms 3921/3922

If you use an outside provider to prepare and/or file Forms 3921 and 3922 with the IRS and provide statements to employees (which I recommend—you have better things to do with your time than deal with these filings), get the conversations with your provider started now. The deadline for employee statements is January 31!

If you don’t outsource this function, don’t forget that this year’s returns will have to be filed on the IRS’s new IRIS platform. To use this platform, your company will need an IRIS transmitter control code (TCC); your TCC for the soon-to-be-defunct FIRE system won’t work with IRIS. Don’t put this off! It can take 45 days to get a TCC—longer, if there are problems with your application.

Check with your accounts payable team to determine if your company already has a TCC for IRIS before you submit an application. Only one TCC is issued per company.

Finally, you’ll need your own personal ID.me account to access the IRIS platform. Your account will need to be authorized to use your company’s TCC.

International Advisors

If you offer stock compensation to non-US employees, it’s a good time to check in with your external advisors for international compliance to find out if any local requirements have changed and if there are any year-end reporting requirements you need to comply with outside of the United States.

Where US employees have relocated to other countries, or foreign nationals have moved into the United States, also review the US tax reporting requirements with respect to these folks (even for foreign nationals who moved back out of the United States by the end of the year). Check out Marlene Zobayan’s blog, “Year-End Preparation for Mobility Compliance,” for more tips.

Build Your Year-End Checklist

For more suggestions of items that should be on your checklist for the end of the year, see our "Top Ten List on Year-End Procedures."