Just exercised 1,000 options at $10/share strike. Stock is trading at $50. I paid $10K cash, now have shares worth $50K on paper.
Got two questions: (1) Is there a tax event when I exercise? I thought it was only when I sell. (2) If I sell tomorrow, my gain is $40K. But I’ve heard something about “ISO spread” being taxable at exercise time even if I don’t sell?
I want to model this in Beancount so I understand my tax liability before I panic.
For employees with equity: how do you track exercises vs sales? And when does the tax hammer actually strike?
ISO vs NSO matters. ISO = no tax at exercise (spread might be AMT though). NSO = ordinary income on spread. Which kind do you have?
I had ISO options at a startup. Exercised 500 at $1 strike, stock climbed to $20. Two things I learned:
(1) Exercise isn’t taxable (for ISO), but the $9.5K spread counted toward my AMT (alternative minimum tax). I owed extra tax even though I didn’t sell.
(2) For Beancount: I tracked exercise as “bought 500 shares at $1 cost basis,” then noted in comments “spread $9.5K for AMT.” When I sold, simple capital gains calculation.
Moral: don’t ignore AMT.