Tax strategies for Incentive Stock Options (ISO)

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boilerd
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Joined: Sat Jul 24, 2021 9:06 pm

Tax strategies for Incentive Stock Options (ISO)

Post by boilerd »

Long time reader, first time poster...

I am employed by, and hold vested ISO in, a 5 year old privately-held company. We have been informed by the founder that later this fall the company valuation will likely exceed the $50M QSBS limit, and so I am considering exercising some of those options before that occurs. Past threads have already helped frame my thinking around how many options to exercise and flagged potential AMT applicability, but a few questions remain:
  • In future years where I am not subject to AMT, AMT credits are capped at only the amount =(regular tax minus AMT tax), correct?
  • How has the ISO scenario played out for you as company valuation rises, and the AMT bill becomes exorbitant? (share valuation is already at 10x my strike price) Do people with vested (but not liquid) shares find themselves effectively priced-out from exercising options due to the tax bill? Or in practice do companies often let employees cash-out enough to pay the tax bill, or is there a tax trick to read up on?
  • My employer does not plan to go public, and there are no talks of a corporate buyout anytime soon, so my own exit strategy is fuzzy compared to those scenarios. The company claims right of first refusal when shares are sold, but of course no obligation to buy. Any anecdotes around trying to sell private company shares in similar circumstances, either back to the company, to existing company investors, or to outsiders?
  • In the event I get audited, how is QSBS status substantiated?
  • I do not have an established relationship with any tax professionals (tax situation has been very straightforward until now). There are sections of the ISO plan document that I would benefit from having clarified -- that sounds more like a lawyer topic to me, while the tax optimization problem sounds like something for a CPA. Can one person do both? Some other profession(s)? IOW, "what kind of practice should I make an appointment with?"
Thanks for the help!
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