I think you need to note that 1,000 options really means the option to buy 1,000 shares of the underlying company, because a person might misconstrue the 1,000 options to mean 1,000 standard option contracts, which would actually reference 100,000 shares of the underlying company, which means the exercise cost would be considerably higher.

I really appreciate the simplicity on how you explained this! Really helpful! Thank you very much!!!

Oh man I can't believe somebody actually took the time to give you a thumbs down after you explaining this so well.

Great video, very good explanation, simple and succinct...thank you!

Great explanation.

Thank you 🙏🏾

You can exercise early for sure, and that does start the clock on your tax process. If you hold for a year you get long term capital gains. So it can be a benefit. The only other question is simply coming up with the cash to exercise. You can wait to exercise and that delays the tax implications if you do not have the cash.

@jonathansage2147

3 жыл бұрын

This is not the only other consideration!!! To anyone who watches this video, please consult with a CFP, you may put yourself in grave financial distress if you don't! I am not a tax professional. However, if you exercise and hold a stock that is already in the money (current market value is more than the strike price), you could trigger the alternative minimum tax (AMT). In my current situation, my cost to exercise is only $28k. However, it will cause me to have $410k worth of paper income (company is private, I can't sell the shares), which causes AMT to kick in and I would owe an additional $100k in taxes the year I exercise. Yes, eventually I will get that money back as AMT credits, but you have to be prepared for that initial exercise tax year. Be careful!

what happens if you bought stock option when the company was private then it went public? Do I have to wait a year for sale to be considered long term capital gains?

@jonathansage2147

3 жыл бұрын

In order for it to be considered long term capital gains you would have to exercise the options more than a year before the company did their IPO.

If you work for a private company can you vest and exercise your options AFTER the IPO?

Wouldn't you always want to exercise early (if you can) and just hold on to the stock selling it when appropriate? Wouldn't your tax be less?

@jonathansage2147

3 жыл бұрын

Most private companies never have an exit event, so buying early means you may be buying something that eventually will have zero value.

Will the private company/startup buy the shares back from me if I choose to sell them years after I exercised them? Or they can choose not to and I am stuck with them?

@jonathansage2147

3 жыл бұрын

They can choose not to and leave you stuck with them.

Thanks you for breaking it down. keep it up.

This needs to mention AMT. It feels like every ISO video either doesn't cover AMT in full or completely neglects it. If your stock is deep in the money (current market value is much more than the strike price), then exercising your shares with the intent to hold them could trigger the alternative minimum tax. In the year you exercise, you could owe hundreds of thousands of dollars in additional taxes - without ever having sold the stock. You'll eventually get that money back in subsequent tax years, but you need to be aware that this can happen. BE CAREFUL!