Exercise Stock Options โ ISO & NSO Tax
Calculate exercise cost, spread value, and tax liability. NSO = ordinary income. ISO = potential AMT. Plan before you exercise.
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Key figures and definitions for this model: โข Net Profit: $72,000 โข Exercise Cost: $50,000 โข Spread: $100,000 โข Tax: $28,000
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Why: Exercise timing and tax strategy matter. NSO is taxed at exercise. ISO may trigger AMT. Plan cash needs for cost + tax.
How: Exercise Cost = Strike ร Shares. Spread = (Current - Strike) ร Shares. NSO Tax = Spread ร Rate. ISO: AMT estimate ~28%.
Run the calculator when you are ready.
Sample Scenarios
Exercise Details
Exercise Analysis
Exercise Details
Financial Impact
Tax Implications
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๐ก Money Facts
No ordinary tax
โ IRS
Ordinary income
โ IRS
AMT approx
โ IRS
Early exercise
โ IRS
1. Key Takeaways
- โข ISO: No ordinary tax at exercise; AMT may apply
- โข NSO: Spread taxed as ordinary income at exercise
- โข ISO qualifying: Hold 1yr+ after exercise, 2yr+ after grant
- โข Exercise early for ISOs to minimize AMT spread
2. Did You Know?
83(b) Election
Early exercise for startups
AMT Risk
ISOs can trigger Alternative Minimum Tax
Cashless Exercise
Sell some to pay for exercise
Withholding
NSO: employer withholds taxes
Diversify
Don't hold too much company stock
Qualifying Disposition
ISO held 1yr+ after exercise
3. How It Works
Exercise Cost = Strike ร Shares. Spread = (Current โ Strike) ร Shares. NSO Tax = Spread ร Rate. ISO: AMT on spread (approx 28%). Net = Spread โ Tax.
4. Expert Tips
Exercise ISOs early
Minimize AMT spread
83(b) for startups
Lock in low value, start clock
Watch AMT
Large ISO exercise can trigger AMT
Diversify after exercise
Sell some to reduce concentration
5. Comparison Table
| Spread | 24% Bracket | 32% Bracket |
|---|---|---|
| $50,000 | $12,000 tax | $16,000 tax |
| $100,000 | $24,000 tax | $32,000 tax |
| $200,000 | $48,000 tax | $64,000 tax |
6. FAQ
ISO: No ordinary tax, AMT may apply. NSO: Spread = ordinary income, withheld.
Early can minimize AMT. Consider 83(b) for startups.
Sell enough shares to cover cost + tax. Reduces shares you keep.
7. Sources
- โข IRS โ Stock Options
- โข IRS โ AMT
8. Quick Stats
ISO
No ordinary tax
NSO
Ordinary income
28%
AMT rate (approx)
83(b)
Early exercise
9. Disclaimer
Disclaimer: Estimates only. Consult a tax advisor for ISO/NSO strategy.
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