Blog - Employee Stock Option Fund

Reduce AMT Exercising NSOs

Alternative Minimum Tax (AMT) was designed to ensure that tax payers with access to favorable tax shelters pay at least a minimum amount of tax. The AMT rate is lower than the ordinary income tax rate applicable to the same level of income since it is considered a minimum amount. The calculation of AMT is based on calculating your taxes two ways and paying the higher figure. If the AMT calc

Purchase Stock Using an IRA

Holding Private Shares in an IRA It is very common for founders or early employees to have an opportunity to buy a substantial amount of stock in a promising startup company at a very low price. If your company permits transfers to your own IRA, you can create an IRA account at a special financial institution such as Pacific Premier Trust and then move your private shares into it. However, you are limited to how much, if any, you can

Qualified Small Business Stock

A potentially huge tax savings available to founders and early employees is being able to exempt up to $10 million in capital gains or 10x the invested capital, whichever is greater, from federal taxes if the investment was held at least 5 years. Exercising stock options from an eligible company counts as investing! The rules applying to Qualified Small Business Stock (QSBS) were designed to encourage investments in certain small businesses.The exemption no longe

Exercise Just Enough Options Each Year To Avoid AMT

Qualified Incentive Stock Options (ISOs) are not subject to ordinary income tax when exercised but are subject to Alternative Minimum Tax. Most people are not subject to AMT, so you can use our AMT calculator method to determine just how many shares you can exercise each year before tripping the AMT threshold. The basic idea is to set up your tax program to calculate your likely taxes for this year except indicate that you only exercised one share.

So You Want To Save On Taxes When Exercising Options

Venture-backed startup companies are big fans of using incentive stock options to attract and retain employees. A company can issue large incentive stock option grants to its employees with no tax impact on the employee on the date of issue provided the exercise price (also called strike price) is equal to or exceeds the fair market value of the stock on the date of grant. Many times, employees wait to exercise their stock options until a sale Venture-backed startup companies are big fans of using incentive stock options to attract and retain employees. is within sight. Then they exercise andRead More

Dividing Stock Options In a Divorce

Stock options in high-potential private companies can represent a significant source of wealth on a family’s balance sheet. However, in a divorce proceeding, stock options, like other marital property, must be valued and divided between the parties. But how do you determine the value of stock options?The decision to exercise stock options implicates yet another thorny issue: which party supplies the cash to exercise the options? One party will

High Growth a Double Edged Sword

Regardless of risk appetite, startup employees should understand how changes in the company valuation affects them.Cybersecurity startup Cylance is experiencing tremendous growth, but this growth might burn employees with cheap stock options. Many employees assume as the company grows, they will make a ton of money on exit; however, the timing of their exercises can change the outcome significantly. The main contributing factors are the different tax rates employees are subject to over time.As demonstrated below, Cylance has been growing at about 10% a month while experiencing non-existent churn. Few startups can boast such a growth rate. However, high growthRead More

Conserve Your Cash

For people who work in private, venture-backed companies, stock options may represent the most potentially valuable asset they have. Note that key word–potentially. Stock options aren’t a sure thing. For every private company that goes public or is sold for high price, many more are liquidated and the people who own common stock or exercised their options lose 100% of their investment. When people change jobs, they usually have 90 days to decide if t

Tax Consequences When Exercising Stock Options

the addition of taxes makes the entire investment more burdensome as well as risky The Alternative Minimum Tax (AMT) can apply to current and former employees of privately held companies when they exercise their incentive stock options (ISOs) if the fair market value is higher than the exercise price. The AMT can have a significant cash impact on those who exercise their ISOs.

Maximizing The Value Of Your Common Stock Holdings

selling early is not the only alternativeEmployees of venture-backed startups are tied to the illiquidity of their stock positions. As timelines to exit have consistently lengthened, employees have begun looking for liquidity alternatives such as secondary market sales to enable them to cash out early without having to wait for an IPO or M&A exit. However, selling early is not the only alternative, and it may not be the best way to maximize the value of your equity holdings. While selling early provides near-term cash, it forever limits your future upside potential because once the stock is sold, there isRead More