Challenge

Have you exercised Incentive Stock Options (ISOs) this year?

Did you exercise them and turn them into shares of stock? If so, you may have to pay Alternative Minimum Tax (AMT) next April. How much are your ISO shares worth now? If the value of your ISO shares is currently below where it was when you exercised-and-held your options, you might have an IRS AMT tax bill that is a large percentage of your ISO shares’ current value.

Solutions

You can continue to hold your ISO shares and wait for the market value to potentially increase.

Pros: If the market value rises, you will still have your ISO shares and can participate in the increasing value. You might also qualify for a lower tax rate on any gains after holding your shares over one year.

Cons: Your ISO shares may not rise or continue to fall and then you might not have the cash available to pay the AMT tax when it’s due.

You can sell some or all of your ISO shares in what’s called a “disqualifying disposition”.

Pros: Whatever amount of your ISO shares you decide to sell during the same calendar year you exercised-and-held your ISOs will change the tax implications. For ISO shares you sell with a price that’s lower than the price when you exercised-and-held, you will only be taxed on the difference between your ISO strike price and the price of your ISO shares when sold instead of the higher price when you exercised-and-held.

Cons: Whatever amount of ISO shares you sell in a “disqualifying disposition” will no longer move up if the stock price rises in the future and your tax rate on your gains might be higher even if the tax amount in dollars is lower.

Next Steps

We’ve helped clients who face choices just like these with their ISO shares. We’ll collaborate with you so you can determine the pros and cons of your individual situation. Through conversation and planning, we can run “what if” scenarios tailored to your concerns and goals to show you a range of possible paths to consider. We’ll continue to update your plan through ongoing communication so it stays current as you change and the world changes.

Are you having this problem?

Click the link below to meet with a team member and discuss your options.

Please note: The above case study is hypothetical – it does not involve an actual client. Case studies are intended to illustrate the hypothetical experience of a fictitious client based on a scenario that an actual client might experience. Case studies are designed to illustrate how we may provide investment advisory services through Mariner Platform Solutions (MPS) to our clients. Remember that no two clients, situations, or experiences are exactly alike. Case studies are not to be construed as an endorsement or testimonial of any of its past or current clients, nor any assurance that we may be able to help any client achieve the same results. To the contrary, no case study should be construed by a client or prospective client as a guarantee that they will experience a certain level of results or satisfaction if engaged in investment advisory services available through MPS.