Split ISO Exercises between December and January

Minimize Taxes by Splitting Your ISO Exercise between December and January

Incentive Stock Options (ISOs) are eligible for favored tax treatment which means they are not subject to withholding tax upon exercise like NSOs. However, they are subject to Alternative Minimum Tax (AMT) if the size of your exercise is beyond the exemption limit. If you happen to be at the end of the current tax year and you just eclipse the exemption limit, then consider exercising just enough in December to stay below the limit. While exercising the rest in January of next year to take advantage of a fresh exemption limit. However, 409A updates to the Fair Market Value of your stock are often triggered at the end of a year so waiting until January could result in a higher FMV on your deferred exercise. That could mean triggering some taxes albeit delayed until the following April. If that is a concern, ask company officials about when they plan to do a 409A update since most startups only do them following new rounds of financing.

See this link for more ways to save money on stock options. Feel free to contact the ESO Fund for assistance in funding your stock option exercise while not having to face the financial risk of investing in a startup. For help funding exercise related taxes, check out how ESO Fund can cover your taxes risk-free.

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