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Avoid Triggering $100K Limit

Avoid Triggering $100K Limit on an M&A

If you hold ISOs and your company is acquired, then you may trigger the 100K Limit Rule if your option agreement has an acceleration feature. Suddenly vesting all or more of your unvested options will increase the total number of options you vest for the year. Although your original grant was designed to stay under the 100K Limit, you may suddenly exceed it unintentionally.  As a result, some of your ISOs will be NSOs are more expensive since they are subject to ordinary income tax including the Medicare surtaxes.converted to NSOs in order for you to stay compliant. NSOs areRead More

Difference ISO NSO

Differences ISO vs. NSO

The main differences between ISOs and NSOs all have to do with taxes: 1. Definition More formally known as Qualified Incentive Stock Options (ISOs) and Non-qualified Stock Options (NSOs or NQSOs). The qualification refers to eligibility for special tax treatment. 2. AMT or Ordinary Income Tax When you exercise either stock option, there is a spread between the exercise price and the current Fair Market Value (FMV) that is subject to Tax ISOs receive special tax treatment and are exempted from ordinary income tax on the spread. However, exercising an ISO is subject to Alternative Minimum Tax (AMT), which comesRead More

Reduce AMT Exercising NSOs

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 calculation is higher, then the difference of the AMT method over the ordinary method is your Alternative Minimum Tax. A natural consequence of exercising NSO shares that require immediate AlternativeRead More

Purchase stock using IRA

Purchase Stock Using 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 Individual Retirement Account (IRA) is sufficiently funded, you can create an IRA account at a special financial institution such as Pensco, rollover just enough money to this IRA, and then purchase your stock or exercise your stock options using that IRA money. By doing so, all gains on this investment will accrue tax-deferredBy doing so, all gains on this investment will accrue tax-deferred until you withdraw the moneyRead More

Qualified Small Business Stock

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. The rules applying to Qualified Small Business Stock (QSBS) were designed to encourage investments in certain small businesses.The exemption no longer applies to California income taxes since 2012 However, the exemption no longer applies to California income taxes since 2012. Some entrepreneurs contemplate leaving California before their M&A or IPOs are completed, but be warned that thisRead More