Module
Tax scenarios
7 min read
Why this matters
The same grant can produce very different after-tax outcomes depending on when and how you exercise. The numbers aren't huge for a small grant, but they get serious fast. None of this is tax advice. The point is to show you the shape of the math so you know what to ask.
ISO exercise, hypothetical
You hold 1,000 ISOs at a $2 strike. Current FMV is $10. To exercise: $2,000 cash. Spread at exercise: $8,000. Regular income tax at exercise: $0. AMT exposure: $8,000 (whether AMT actually triggers depends on your full tax picture). If you hold the shares 1+ year past exercise and 2+ years past grant and sell at $50, the full $48,000 gain per share group goes at long-term capital gains rates.
RSU settlement, hypothetical
You vest 500 RSUs when the stock is at $40. Ordinary income at settlement: $20,000. If your effective rate is 35%, the company withholds about $7,000 worth, usually by selling roughly 175 of your shares. You end up with about 325 shares delivered.
83(b) election
If you early-exercise unvested options or receive restricted stock subject to vesting, an 83(b) election lets you be taxed at today's (low) value instead of waiting until vesting. You have 30 days from exercise to file. There are no extensions. The benefit is potentially huge if the company grows. The risk is real. If you leave before the shares vest, you lose them and you don't get the tax back. Get a professional involved.
A note on QSBS
If you hold qualified small business stock (Section 1202) for more than 5 years, you may exclude up to the greater of $10M or 10× your basis from federal capital gains tax. The rules are specific and easy to break. If your company qualifies, this can be the single most valuable tax benefit you'll ever encounter. Not a calculation to DIY.
Educational only. Not tax, legal, or financial advice. Talk to a qualified advisor.