Hi, my name is Tom Lo. I’m with Vested Financial Planning. I’m here to help you understand how can you save taxes on your ISOs and not pay any AMT?
The way you save taxes on your ISOs is when you exercise and hold them for more than a year, then they qualify for the lower long-term capital gains tax rate on the difference between your strike price and the fair market value. Instead of paying the highest ordinary income of 37%, you pay the lower long-term cap gains tax rate of 20%. So you save 17%.
Now, when you do this, you may end up paying AMT or Alternative Minimum Tax. The way to avoid that is you do AMT projections. You want to work with a tax professional. You want to identify what’s called the AMT crossover point. That is where you can exercise enough ISOs just before AMT kicks in. What that means is you can exercise those ISOs. You start the clock on the long-term capital gains tax rate, but you don’t pay any AMT. If you get to the AMT crossover, you get to the best of both worlds. You get to exercise your ISOs, but you don’t have to pay any AMT.
If you want to learn more, come to my website, vestedfinancialplanning.com. Thank you very much.
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.