So when you exercise an ISO, there is no exercise tax. Is the exercise tax deferred to when I sell the underlying shares? Or, if I hold the shares for min 1 year after exercising, will I only have to pay the 10% capital gains tax?
You will most likely be taxed with AMT on the spread of your strike price and the current 409A valuation. Whichever is gonna be higher between your ordinary tax bracket and this Alternative Minimum Tax is gonna be what you pay. Depending on your tax situation you may have to pay more taxes if you exercise a lot. And yes even if you can't sell them yet the IRS will want to tax you on this unrealized gain... I think I heard about some way to defer this tax but I can't say for sure... Btw I'm joining instacart soon :)
Awesome! It’s a great time to join, lots of exciting developments lately. Welcome to the team!
Well the best time to join was 4 years ago 😅 but yeah I'm super excited!!
Found the answer to my question: With an ISO, the employee pays no tax on exercise, and the company gets no deduction. Instead, if the employee holds the shares for two years after grant and one year after exercise, the employee only pays capital gains tax on the ultimate difference between the exercise and sale price.
You should still be careful of AMT: https://www.investopedia.com/articles/active-trading/061615/how-stock-options-are-taxed-reported.asp
I got hit by AMT when I exercised ISOs at Checkr a couple years ago
Like the above post mentioned, your gains (on paper) between your exercise price and current 409a price is added to your amt taxable income in the year you exercise. You may or may not pay any additional tax depending on your income, filing status, shares exercised etc. Once you exercise, the next taxable event is sale of the stocks. Depending on whether you are doing a qualifying disposition, you will get short term or long term capital gains.
there’s no exercise tax because there’s no such thing as “exercise tax”. ask a better question you’ll get a better answer. exercising ISO s can bankrupt you.
I mean it's a complicated subject, it's better to ask questions than not and then being surprised...
the topic is far too complex to get an answer on blind
Might be useful: https://blog.wealthfront.com/equity-ipo-guide/
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It’s all gonna be worthless anyways 🙊🙊 (not targeting instacart...)
I don’t understand why so many people say this. I know plenty of people who have been through successful exits, and none of them had options out-of-the-money at the time of sale.