Stock Option Strategy

Stock option strategies can significantly affect your financial outcomes depending on timing, tax implications, and company events. Here's the core points from the lesson:

• Early exercise with an 83(b) election can offer long-term tax benefits, especially for qualified small business stock, but requires accepting the risk of losing the money invested
• For non-qualified stock options (NSOs), exercising and holding is risky due to upfront ordinary income tax that isn't offset if the stock later declines
• Strategies like exercising and immediately selling (or cashless exercise) can reduce risk and lock in gains, especially around liquidity events like IPOs
• AMT planning for incentive stock options (ISOs) includes spreading exercises across tax years or alternating years of exercise and sale to manage tax impact and recover AMT credits
• Exercising ISOs early in the year offers flexibility to sell later in the year if the stock drops (avoiding AMT) or hold into the next year for favorable capital gains treatment

For more on why you might want to exercise your ISOs early in the year, click here. For my AMT Calculator (for informational purposes only, not tax advice), click here.

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