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Windfall from a startup + tax questions

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  • Windfall from a startup + tax questions

    Hello,

    My company just announced that they are going IPO in a few months. I have a lot of ISO stock options with them that I haven't exercised. My exercise price is $2.5 $6 for the stocks that have vested and the current price is $16 and projected to increase when we go IPO. I was trying to forward project my taxes so I can decide whether to
    1. Exercise now and pay the AMT tax and then hold and sell after 1 year (any increase in stock price from $16 will be long term capital gains at that time, it adds a small risk that the price could drop) in money would be taxed
    2. Wait till IPO and exercise and sell and incur short term capital gains (no risk, but possibility of higher tax penalty)

    I would be diversifying in the near future (1-2 year timeframe) since I have a large fraction of my NW in my company's stock now. My current top bracket is 37%, for 2021 I am projection that I will be 50k over the AMT tax limit. I also have $50k in my roth account and I am not sure if I could purchase my stock options with my roth account and completely avoid the taxes (at least on part of my stocks) that way.

    I would appreciate any insights here. If there are CPAs lurking in the forum, please DM me (not sure if I can make this request, please let me know if I should remove this)

  • #2
    Tough to make a decision right now. There's also the looming threat of a change to the LTCG rate for those with taxable income > $1M that could be retroactive to include all or part of 2021, making it equal to ordinary income tax rates for those high earners.

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