In this video, I explain how I work with Snowflake employees with Incentive Stock Options (ISO’s) to minimize their Alternative Minimum Tax (AMT) with this tax strategy.
How Snowflake employees with Incentive Stock Options can minimize their Alternative Minimum Tax Transcript:
Hi, my name’s Tom Lo. I’m with Vested Financial Planning and I’m here today to help Snowflake employees with Incentive Stock Options or ISOs minimize their Alternative Minimum Tax or AMT.
I need to give you a little tax background to understand this which AMT is a parallel tax calculation to your ordinary income. When you do your taxes, it gets calculated both ways and whichever one is higher is the one you end up paying. It’s usually ordinary income. However, they treat different types of income differently and so specifically for ISOs, when you exercise, the difference between your strike price and the fair market value, ordinary income doesn’t count as income but it does count for AMT. So when you exercise ISOs, you often get hit with AMT.
What I do with my clients to minimize AMT is we work with a tax professional. We do AMT projections. We’re trying to identify the AMT crossover point.That is how many ISOs can you exercise just before AMT kicks in. So then it becomes a no-brainer to exercise that many ISOs.You don’t have to pay any AMT but the ISOs you exercised, if you hold them for more than a year, then they qualify for the lower long-term capital gains tax rate. So the highest Federal ordinary income rate is 37%. The highest long-term cap gains tax rate is 20%. In that case, you could save 17% on your taxes.
This is a way to exercise your ISOs and minimize your AMT. If you have questions about your specific situation, then feel free to schedule a free virtual consultation.Thanks for watching!
After 20 years working for companies including eBay, Yahoo!, Intuit, and startups, I made a career change into the financial world as a fee-only financial planner 9 years ago. I earned my CFP®, spent a few years at a boutique fee-only firm in San Jose, worked 2 1/2 years at a leading wealth management firm in San Francisco, and then left to build the firm I wish had existed when I was working as a tech professional.
My mission is to help other Silicon Valley professionals make the most of their employee equity to help them reach their financial goals.