Board of Directors: Planning Playbook

You have built a successful career in which your work and accomplishments have opened doors to opportunities to serve organizations who seek your expertise in setting strategic vision, managing executives, governing management teams, and representing stakeholders. These organizations value your skill set, your knowledge of industry, and your diverse background, and want you to sit at the table to inform the organization how best to navigate the present and confidently move forward in the future.

Often overlooked is this same mindset when it comes to incorporating the compensation structure of this board seat with your personal financial planning – after all, there is inherit complexity involved but also opportunity for those willing to get the help.

We’ve worked with many board members of all different backgrounds, across many different organizations, and we’ve compiled a playbook around how to align this board seat with your long-term financial goals.

Board of Directors Planning Playbook

1. Managing Income and Expenses:

• Compensation Structure
  • Cash – Retainer Fees, Meeting Fees, Committee Fees
  • Equity and Equity Awards – Restricted Stock Units, Performance Stock Units, Non-Qualified Stock Options, Incentive Stock Options
    • Vesting, tax triggers, 83(b) elections, liquidity planning

• Track Board-Related Income and Business Expenses
  • Maintain distinct bank accounts and credit cards for your business to track income and expenses accurately. This simplifies bookkeeping and tax preparation. Consider a system to categorize expenses for easy tracking – legal, supplies, meals, travel, etc.

2. Tax Planning:

• Directors are typically compensated by the company in the form of 1099 Income. This is income subject to self-employment taxes regardless of whether the income is reported on Schedule C of your 1040 or on a Partnership tax return, if you are a multi-member LLC.

• Understand Self-Employment Taxes: As a self-employed individual, you are responsible for both the employee and employer portions of Social Security and Medicare taxes (self-employment tax), in addition to income tax. The self-employment tax rate is 15.3% (12.4% for Social Security up to a certain income limit and 2.9% for Medicare on all earnings). One-half (1/2) of this self-employment income is deductible, but remember, that deduction offsets income at your tax bracket.

• Pay Estimated Taxes Quarterly: Unlike traditional employees who have taxes withheld from each paycheck, self-employed individuals generally need to pay estimated taxes to the IRS on a quarterly basis to cover income tax and self-employment tax. Failure to do so can result in underpayment penalties.

• Maximize Deductible Business Expenses: Keep detailed records of all eligible business expenses, as these can reduce your taxable income. It is important to separate expenses incurred for personal benefit from those related to business work. Common deductions include:
  • Home Office Deduction: If you have a dedicated workspace in your home used exclusively and regularly for your business, you may be able to deduct a portion of your home expenses (rent, mortgage interest, utilities, insurance, etc.). You can use the regular method or the simplified method.
  • Business Travel and Meals: Expenses for necessary business travel and 50% of the cost of business meals may be deductible.
  • Business Insurance: Premiums for various business insurance policies (liability, professional indemnity, etc.) are typically deductible.
  • Supplies and Materials: Costs of materials and supplies used in your business are deductible – some as a full and immediate deduction; some get depreciated (think equipment).
  • Professional Development: Expenses for relevant training, conferences, and education can often be deductible.
  • Vehicle Expenses: You can deduct the actual costs of operating your vehicle for business purposes or take the standard mileage rate ($0.70 per mile in 2025).
  • Retirement Plan Contributions: Contributions to self-employed retirement plans can be tax-deductible.
  • Health Insurance Premiums: You may be able to deduct health insurance premiums paid for yourself, your spouse, and your dependents.

• Take Advantage of Retirement Plan Contributions: Contributions to qualified retirement plans not only help you save for the future but also reduce your current taxable income. See Section 3 below for more details. Some plans may allow for Roth contributions – great strategy to evaluate alongside your tax team.

• Consider Your Business Structure: How you structure your business can lead to different tax considerations, each with its own set of pros and cons – Sole Proprietor, LLC, Partnership with S-Corp election.

3. Retirement Planning:

• Self-employed individuals have several options for retirement savings, often with tax advantages: · Traditional or Roth IRA (Individual Retirement Account): Easy to establish, easy to fund. For 2025, the contribution limit is $7,000 – this usually gets an inflation adjustment from time to time. There is also an additional $1,000 catch-up contribution for those aged 50 and over. Traditional IRA contributions may be tax-deductible; Roth IRA contributions are made with after-tax dollars. There are income limitations when determining if a contribution is tax-deductible or if a direct Roth contribution is allowable. There are Roth conversion planning opportunities as well.
• SEP IRA (Simplified Employee Pension Plan): This is typically the easiest plan to establish for self-employed individuals and small business owners looking to contribute more than a Traditional or Roth IRA allows. As the employer, you make contributions to your own SEP IRA. Contributions are tax-deductible, and earnings grow tax deferred. The contribution limit for 2025 is 25% of your net self-employment income or $70,000, whichever is less. The 25% limitation can be a hurdle to fully funding since it requires significantly more income to max out the annual amount.
• Solo 401(k): This plan allows you to act as both the “employee” and the “employer,” allowing for potentially higher contributions. For 2025, as the employee, you can contribute up to $23,500 (plus a $7,500 catch-up for those age 50 and over); and as the employer, you can contribute up to 25% of your net adjusted self-employment income. The combined employee and employer contributions cannot exceed $70,000 (plus the catch-up amount if applicable). A Roth option may also be available. Your spouse may be eligible to participate if he or she is active in the business.
• Defined Benefit Plan: This plan allows for the highest contributions and is often suitable for those with consistent, high income who want to maximize retirement savings. An actuary typically needs to calculate the contribution amount. Can be funded from cash flow or from other after-tax cash/brokerage assets. There are many rules to follow; hiring a third party administrator is advised.

4. Risk Management and Insurance:

• Health Insurance: As a self-employed individual, you are responsible for securing your own health insurance. Explore options through state-based exchanges or private insurance plans. Consider a Health Savings Account (HSA) if you have a high-deductible health plan, as it offers tax advantages for healthcare savings.
• Business Liability Insurance: Depending on your business, consider liability insurance to protect yourself from potential lawsuits or claims.

5. Ancillary Planning Considerations:

• Typically, if a portion of a Director’s compensation is paid in stock, the director will likely defer tax and receipt until resignation or retirement from the board. So, there may be beneficiary designation and timing of payout options to consider.
• Deferred comp in company stock can accumulate significant amounts for a long-term director, which creates single-stock concentration risk. This could introduce creative portfolio design, charitable giving, and estate planning opportunities.
• Sales, gifts, or other transfers may be subject to Securities Law regulations for public company boards; so it is important to coordinate with corporate legal counsel on Rule 144 and Form 4 requirements.
• Are there portfolio management considerations with this board role? Can we be tax efficient with what investments we own and what type of account we own them in? Are there needs to hedge or diversify company stock, if applicable?
• Does the estate plan need to consider this business venture? S-Corps do have special considerations when it comes to assets passing in Trust. How likely is it that this working structure retains any assets?
• How do other income sources impact the overall tax situation?

Serving on a board of directors is quite an achievement that reflects your talent, good judgement, expertise and leadership—but it also adds a layer of financial complexity that should not be ignored. With a willingness to do some forward-looking planning, and get the right strategies in place, your compensation package can become a powerful tool in your broader financial picture.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. For additional information, please visit: http://verumpartnership.com/disclosures/