Deciding when to exercise, hold, and sell your incentive stock options (ISOs) is complicated, requiring you to manage several simultaneous financial variables, all at the same time. These include: Prices: ...
Deciding when to exercise, hold, and sell your incentive stock options (ISOs) is complicated, requiring you to manage several simultaneous financial variables, all at the same time. These include: Prices: Especially the strike price, the share price at exercise, and the final sale price Tax-Efficiency: Whether to make a more tax-efficient qualified sale (while maintaining single stock risk), or a faster disqualified sale. AMT Management: How to manage alternative minimum tax (AMT) due if you exercise and hold That’s a lot to tend to, and things become more complicated post exercise and hold. As the stock price changes, your opinion as to whether exercising and holding ISOs was a good idea may change. In fact, if the stock price is lower post exercise, you may reconsider whether you’re better off holding ISO shares for a qualified sale in hopes of paying long-term capital gains (LTCGs), or selling them in a disqualified sale and incurring less favorable ordinary income tax. But why would you want to intentionally disqualify ISOs and pay ordinary income tax? And when might it make sense to do so? Let’s explore: Why You Want to Exercise ISOs Early in the Year There are several reasons employees might… Read More »
