The Alternative Minimum Tax (AMT) can apply to current and former employees of privately held…
How will the Trump-GOP tax reform affect stock options? The 2018 Tax Cut & Jobs Act may have negatively impacted taxes for employees in the top 2 venture-destinations, California and New York, but the overall changes were for the better. Alternative Minimum Tax (AMT) wasn't eliminated but then again the threat to tax options at vesting instead of exercise didn't pass either.
ISOs are still subject to AMT, but the following have a significant impact.
The reduction of AMT makes it a lot easier to qualify for the lower Long Term Capital Gains Tax RateOverall, the reduction of AMT makes it a lot easier to qualify for the lower Long Term Capital Gains Tax Rate by holding shares at least one year after exercising and at least 2 years after the original grant date. Previously, much of the LTCG benefit was negated by having to pay AMT on the spread between the original grant price and the current Fair Market Value (FMV). As such, LTCG benefits would mainly apply only to the additional rise in stock price after the exercise.
Since the Employee Stock Option Fund routinely advances cash equal to your AMT needs, the portion of the cash advance not needed for AMT can now be retained as taxable initial liquidity rather than being used entirely to pay AMT. Of course, if your base income is already subject to AMT and you need a large AMT advance as in the past, then ESO is still available to provide this for you if your application is approved. On the other hand, if you let ESO cover the cost of your exercise instead and skip the need for additional tax coverage, you will have a smaller total cash advance which results in lower repayment terms at final liquidity.
NSOs are still subject to ordinary income tax at the point of exercise and there appears to only be small changes for the better.
See this link for more information on differences between ISOs and NSOs. See this link for other ideas on how to reduce taxes on your stock options. For questions and assistance obtaining financing, please contact Scott Chou at the Employee Stock Option Fund.
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