For people whose company is going public
Your company is going public. The next six months can swing six figures of tax.
A 90-day exercise window, a lockup, and AMT if you exercise. Model it before you commit.
Worked example
Exercising 10,000 ISOs at a $2 strike, with a $45 409A value, adds $127,876 of AMT this year
for a single filer in California already earning $350,000. Your numbers will differ.
Computed just now, in your browser, by the same engine the app uses.
Start with what you already know
Three numbers. The app asks for your filing status, state, and income next, then computes the full year. Nothing here leaves your browser.
Common questions
Do I owe tax when I exercise ISOs?
Not regular income tax, but the exercise can trigger AMT.
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The gap between your strike price and the share value on the day you exercise counts as income for AMT.
Whether that turns into a bill depends on the rest of your year.
Source: IRS Topic 427, Stock options
What is AMT, and do I get it back?
AMT is a second way of computing your tax, and you pay whichever result is higher.
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AMT you pay because of an ISO exercise generally becomes a credit you can use in later years.
Getting all of it back can take several years.
What if the stock drops during the lockup, after I exercised?
You can owe AMT on the value at exercise even if the shares are worth less when you can sell.
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If you sell in the same calendar year you exercised, the AMT income from that exercise goes away.
The gain on that sale is taxed as ordinary income instead.
How long do I have to hold for long-term capital gains?
More than one year after you exercise and more than two years after the grant date.
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Sell sooner and some or all of the gain is taxed as ordinary income.
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