TLDR
Here you can find various ways to reduce stock option taxes. To learn more about employee stock options get in touch and explore other resources on this page.
Depending on the type of stock options you are granted (ISOs vs NSOs), the stage of your company (early vs late), and your employment status (new hire, employed, or departed), there are a number of ways to reduce potential stock option taxes. From taking advantage of specific IRS filings to simple tips and tricks, you can potentially reduce your stock option exercise taxes significantly.
The below list is a compilation of 17 different methods:
- Exercise early and File an 83(b) Election
- Exercise and Hold for Long Term Capital Gains
- Exercise Just Enough Options Each Year to Avoid AMT
- Exercise ISOs In January to Maximize Your Float Before Paying AMT
- Get Refund Credit for AMT Previously Paid on ISOs
- Reduce the AMT on the ISOs by Exercising NSOs
- Split your ISO Exercises between December and January
- AMT Disqualifying Disposition
- Move Stock to an Individual Retirement Account (IRA)
- Exercise options in a Qualified Small Business
- Minimize Medicare Taxes by Investing before an Exit
- File an 83(i) Election to defer NSO taxes for 5 years
- Execute a Swap Exercise
- Roll your Capital Gains into an Opportunity Zone Fund
- Move to a Lower State Tax Jurisdiction (Remote / WFH Flexibility)
- Defer Capital Gains Tax via a Deferred Sale Trust
- Reduce NSO Exercise Taxes through a Charitable Contribution of a Conservation Easement
If you hold employee stock options or restricted shares in a private company funded by institutional venture capital, feel free to contact us at the Employee Stock Option Fund for more information on how we can assist you. By doing so, you can not only avoid the risks associated with investing directly in a startup but possibly improve your taxes as well. For specific tax related support related to stock option exercises, please contact Scott Chou.
Check out ESO's AMT Calculator to help determine your AMT liability. For help funding exercise related taxes, check out how ESO Fund can cover your taxes risk-free.
Frequently Asked Questions
What is the Alternative Minimum Tax (AMT)?
What’s the difference between ISOs and NSOs?
Incentive Stock Options (ISOs) have tax advantages, while Non-Qualified Stock Options (NSOs) are taxed as regular income. Click here for more on the differences between ISOs and NSOs.
What does ESO Fund do?
ESO Fund helps startup employees exercise their stock options without risking their own cash. We provide non-recourse funding, covering 100% of the exercise cost and taxes, so employees can retain ownership and benefit from future upside. If the company doesn’t succeed, you owe us nothing—we take on all the risk.
Does ESO Fund pay for taxes as well as exercise cost?
Yes! ESO Fund considers any option exercise related taxes (AMT or NSO) as part of the exercise cost and includes tax coverage in our funding.
