If you are on the fence about exercising your startup stock options this year, listen up.
There are a number of strategies that let you exercise and reduce your tax bill. But most of these are ‘use it or lose it’ – you’ll have to take action by year end if you want to take advantage.
This article covers everything you need to know, all in one place – so you can get it over with in one go. (We know this is no one's favorite pastime.)
Vieje Piauwasdy, Director of Equity Strategy, breaks it down:
- Should you exercise this year and, if so, how many? Or just wait until next year?
- How can you save on taxes if you decide to exercise by year end?
So whatever your situation, get yourself a good cup of coffee and let’s optimize that tax bill.
1. Exercise now or wait until 2022? 3 tax saving considerations
In this intro, we outline three important factors to take into consideration:
- Increases in the 409A valuation (also known as fair market value)
- Personal income and/or location changes
- Taking advantage of the AMT Crossover
2. The AMT Crossover and how to exercise ISOs tax-free
Here, we discuss the alternative minimum tax (AMT) dynamics that allow ISO-holders to exercise up to a specific amount of ISOs tax-free (in other words – won’t trigger a tax liability).
If you haven’t yet tried it, the AMT Calculator will help you determine exactly how many options you can exercise tax-free before the end of the year. It's free. Here's how to use it:
- Sign up here and enter your tax and equity details (~3 minutes)
- Go to Insights in the menu
- Launch AMT Calculator
3. The AMT credit: exercise now, save this year
If you exercise ISOs this year, triggering an AMT tax liability, you may be able to recover some of what you paid in years to come in the form of an AMT credit.
We know this is a lot to think about. We’re happy to talk to you about your individual situation and, if it makes sense in your situation, offer financing to cover the cost of your exercise.
Here are some potential next steps and resources to get you going:
- You can always use the chat in the bottom-right to ask us anything about startup equity and taxes ↘️
- You can use the calculators on the Secfi platform to help you figure out your exercise costs, forecast profits, discover tax strategies and compare scenarios. This is all 100% free. Sign up here for an account
- Exercising too expensive, but still want to do it? Secfi can finance the full cost, including taxes. Lean more about exercise financing here