Are you considering exercising your incentive stock options (ISOs) this year? Before deciding, it’s important to consider the potential tax implications of when and how to proceed. In terms of ...
Are you considering exercising your incentive stock options (ISOs) this year? Before deciding, it’s important to consider the potential tax implications of when and how to proceed. In terms of “how,” some potential strategies include: Exercising well before the ISOs are set to expire Exercising as expiration nears Exercising on some other schedule You can learn more about these specific strategies here. All of these, and more, are viable paths to take. The right strategy for you depends on your circumstances, goals, and objectives. Now, let’s talk in terms of “when,” as that’s what we’ll focus on below. More specifically, how exercising ISOs earlier in the calendar year may present some distinct tax advantages. First, a Reminder About ISOs and AMT In the years you exercise and hold your ISOs, you may be more likely than usual to qualify for the alternative minimum tax (AMT). As a quick reminder, taxpayers will owe AMT if their “tentative minimum tax” (TMT) exceeds their regular tax bill. When you exercise and hold ISOs, the bargain element is included as an adjustment item when calculating the TMT. “Bargain element” refers to the spread between the exercise price of your stock option and the fair… Read More »
