AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
Trying to understand tax implications for ISO
Posted by: tcxp, March 9, 2016 10:03PM
Hi all - hope this is the right place to ask. In a bit of a bind and have a question about how I'd be taxed on ISO units. I've read a bunch, but I'm just not sure.

Options Vested: 22,500 ISO
Strike: $0.51
Current FMV: $1.66

I get that I'm going to be taxed on the spread (1.66-.51) when I buy the options, but my question is what are the tax implications for when I sell the options? Currently the company still isn't public, but lets assume they go public in Jan 17 and the price is $3. Any ideas would be greatly appreciated.


Re: Trying to understand tax implications for ISO
Posted by: Kaye Thomas, March 10, 2016 03:23PM
You've asked a short question with a long answer. Much of my book, Consider Your Options, deals with taxation of incentive stock options, both in the year of exercise and the year the stock is sold. Much of that information, but not all of it, is available on this website in pages indexed here: [fairmark.com].

To give you a very crude outline, assuming you hold onto the stock for more than a year after exercising the option, I would expect you to pay something like $6,000 to $7,000 in federal alternative minimum tax in the year you exercise the option (plus state AMT if you're in California). In the year you sell the stock, your additional tax would likely be approximately equal to your long-term capital gains rate times the amount of profit you have above the current value of $1.66. But I emphasize I'm making many assumptions and leaving out many details. You need to do some reading where I've indicated before you'll be able to ask a question we can answer with any specificity.

Kaye Thomas
Fairmark.com



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