Exercising ISO or NSO stock options - the tax dilemma.

93 votes

Startup founders often have been issued ISOs and NSOs over time. They are treated differently from a tax perspective. Which is optimal to exercise first?

Done Suggested by: John (16 Oct, '18) • Upvoted: 30 Jun, '22 • Comments: 2

Comments: 2

22 Jul, '19
Amy Jones
I envision this as more of a cheat sheet than a flow chart. A couple times per year we get questions about ISOs, NSOs, or RSU. Clients will ask, "should I buy/hold/sell?", "now or later?", and "what are the tax consequences?". Clients will lump these all together as "options" but we all know the IRS does not treat them the same!
14 Sep, '20
Ron Guay
I think this will be more of a checklist of things to consider, rather than a flowchart, but I'd be interested to see either. Looking for a concise way to frame up the various considerations: AMT (in the case of ISO's), potential concentration risk, potential restrictions on selling shares (i.e. pre-IPO companies), etc. I would prefer to see this include just ISO/NSO's, as I think RSU's are a different animal altogether.