Stock Exercise Problem

New DrlX82
Aug 23, 2018 8 Comments

My company went public recently and I haven’t fully exercised all my stock options. The problem is that stock has gone up and if I exercise the stock I will have to pay huge amount of Alternative Minimum Tax (AMT).

Is there a way I can avoid paying so much tax? Is it possible to use a “trust” somehow? Does anyone know a good Financial Planner who has experience with this?

Appreciate any guidance you can offer.

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TOP 8 Comments
  • MuleSoft txCi08
    Welcome to the world of IPO and tax shocks...u don’t have a way out
    Aug 23, 2018 0
  • MuleSoft kapok
    I’d say plan well with a fiduciary.
    Aug 23, 2018 1
    • New DrlX82
      OP
      Had not thought of this, thanks!
      Aug 24, 2018
  • AMD nyKI57
    The latest tax reform has increased AMT exemptions. Contact a tax professional to see the impact with the new rules.
    Aug 23, 2018 1
    • New DrlX82
      OP
      Agreed, something that I am pursuing.
      Aug 24, 2018
  • I've no experience with this, but can the company structure the transaction so that some of the stocks you get from exercising will be used to pay the tax?
    Aug 23, 2018 1
    • Applied Material HelloItMe
      Some companies do allow a private sale of stocks back to the company to cover AMT. But if the IPO is imminent, just go that route. You have until April 15, 2019 to pay AMT on any 2018 exercises anyway.

      Edit: It already went public so yeah, you can sell on the market to cover AMT.
      Aug 24, 2018
  • Applied Material HelloItMe
    Talk to a professional for sure but two pieces of knowledge I can give:
    1. You can recoup the AMT in future tax years where you have no AMT liability. It sucks up front and it may take a while, but the money is not gone forever. I think the term is AMT carryforward but if I am wrong I will link you.
    2. Exercise over two years if you can so you can use the exemption each tax year. Ideally you exercise this year and the exemption reduces your AMT, and then do it again with full exemption next year on Jan 1.
    Aug 24, 2018 0

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