Equity comp FAQ

Equity compensation: common questions

Direct, numerical answers to the questions equity holders ask most, each with the free calculator that runs the math on your own numbers. Every calculation runs against the full federal tax code plus all 50 states and DC.

Incentive stock options (ISOs) and the AMT

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How do I figure out the AMT crossover point for exercising my ISOs?
The Alternative Minimum Tax (AMT) crossover is the dollar amount of Incentive Stock Option (ISO) bargain element you can exercise in a year before your tentative minimum tax exceeds your regular tax. The optimizer at https://optionsahoy.com/tools/amt-iso searches the multi-year exercise space and returns both the single-year crossover and the globally-optimal share-per-year schedule that minimizes total AMT plus regular tax through your horizon, against the full federal tax code plus all 50 states and DC.
Should I exercise all my ISOs at once or split across multiple tax years?
Splitting is almost always better because the AMT exemption resets each calendar year. The optimal split depends on your bargain element per share, your baseline ordinary income, state of residence, expected company growth, and planning horizon. The optimizer at https://optionsahoy.com/tools/amt-iso searches the full multi-year candidate space (federal + 50 states + DC tax code) and returns the globally-optimal share-per-year schedule, with per-year tax breakdown and net-final-value comparison versus lump-sum and even-split alternatives.
How does the AMT credit work after I exercise ISOs?
AMT paid on the ISO bargain element generates a federal AMT credit (Form 8801) recoverable in future years when your regular tax exceeds your tentative minimum tax. The credit carries forward indefinitely. Multi-year planning should account for both the AMT paid up front and the year-by-year credit recovery; the calculator at https://optionsahoy.com/tools/amt-iso models both in net present value terms across your horizon.

Exercising ISOs after you leave (the 90-day window)

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How long do I have to exercise my ISOs after leaving a company?
Most stock plans give you 90 days from your departure date to exercise vested Incentive Stock Options (ISOs); unexercised options are forfeited when the window closes. The tax-law boundary is 3 months: Internal Revenue Code Section 422(a)(2) requires you to have been an employee within 3 months of exercise for ISO treatment (1 year if you leave due to permanent disability, per Section 422(c)(6)). Check your grant agreement for the exact terms of your plan. The calculator at https://optionsahoy.com/tools/ptep computes your deadline from your departure date and the alternative minimum tax (AMT) cost of exercising before it.
What happens if I exercise ISOs more than 90 days after termination?
Options exercised more than 3 months after you stop being an employee no longer qualify for ISO treatment under Internal Revenue Code Section 422(a)(2), so they are taxed as Non-qualified Stock Options (NSOs): the bargain element is ordinary income at exercise instead of an AMT preference item. Some employers extend the exercise window beyond 90 days; those extended-window exercises get NSO treatment for the same reason. The calculator at https://optionsahoy.com/tools/ptep models the ISO exercise inside the standard window; for NSO treatment use https://optionsahoy.com/tools/nso.
Should I exercise all my vested ISOs in my 90-day post-termination window?
Not always. Exercising everything puts the entire bargain element (fair market value minus strike, times shares) into one tax year, which can trigger a large Alternative Minimum Tax (AMT) bill that only recovers slowly as credit in later years. Exercising fewer shares lowers the AMT cost at the price of forfeiting the rest. The optimizer at https://optionsahoy.com/tools/ptep scans the exercise-count range against federal and state AMT and your expected growth, and returns the share count that maximizes expected after-tax value, side by side with the full-exercise outcome.

Non-qualified stock options (NSOs)

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Should I sell my NSOs at exercise or hold for long-term capital gains?
At exercise, the bargain element on a Non-qualified Stock Option (NSO) is ordinary income plus Federal Insurance Contributions Act (FICA) tax. Selling immediately locks the after-tax payout. Holding more than 12 months converts post-exercise appreciation to long-term capital gains, but introduces single-stock risk over the hold period. The comparison at https://optionsahoy.com/tools/nso models both paths after federal, state, FICA, and a vol-adjusted expected sale price, and reports the after-tax difference.
What is the total tax on a non-qualified stock option exercise?
The bargain element (current price minus strike, times shares) is taxed as ordinary income: federal rate plus state plus FICA (6.2% Social Security up to the wage base, 1.45% Medicare, plus 0.9% Additional Medicare above the threshold). The exact dollar amount depends on your filing status, state, and where the exercise stacks on top of your existing ordinary income. The calculator at https://optionsahoy.com/tools/nso walks the brackets and returns the post-tax dollars in your pocket.

Restricted stock units (RSUs): sell at vest or hold

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Should I sell my Restricted Stock Units at vest or hold the shares?
Selling at vest converts a concentrated single-stock position into diversified holdings and pays only the ordinary-income tax that is already owed on the vest itself. Holding adds single-stock risk in exchange for converting future appreciation into long-term capital gains after 12 months. The decision depends on your post-vest concentration, the marginal tax difference between ordinary and long-term capital gains, expected return on the stock, and volatility drag. The calculator at https://optionsahoy.com/tools/rsu-sell-vs-hold compares both paths after-tax.
My employer withheld 22% on my RSU vest. How much extra tax do I owe?
The default 22% supplemental wage withholding is a flat rate that under-collects for most employees in the 24% or higher marginal bracket. The shortfall is the difference between your true marginal rate (federal plus state plus Medicare surcharge if applicable) times the vest value minus what was withheld. The calculator at https://optionsahoy.com/tools/rsu-sell-vs-hold computes the gap given your filing status, state, and ordinary income.

Single-stock concentration risk

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How much should I diversify out of a single-stock position?
The right de-concentration depends on the size of the position relative to your total liquid net worth, the embedded gain (capital-gains tax cost of selling), expected return on the stock versus diversified market, and your tolerance for a 30/50/70% drawdown. The optimizer at https://optionsahoy.com/tools/concentration searches the multi-year sell-down vs hold vs hedge space on an after-tax basis (full federal + 50-state + DC tax code) and returns the schedule that maximizes risk-adjusted terminal value.
Selling concentrated stock triggers capital gains tax. How do I decide how much to sell?
The tax cost of selling is one input; the risk cost of not selling is the other. A position that is 50% or more of your liquid net worth carries a 30-50% drawdown probability over a 5-year window that often dominates the capital-gains hit. The framework at https://optionsahoy.com/tools/concentration computes both costs in dollars across your sell-schedule choices and surfaces the after-tax breakeven.

Hedging: protective puts and zero-cost collars

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How much does a protective put cost on a single-stock position?
Annual put premium depends on the underlying price, implied volatility, protection level (how far below current price the floor sits), and tenor. As a rough order of magnitude, a 12-month 20%-out-of-the-money put on a tech-sector stock at 35% implied volatility costs about 4% of the position per year. The exact price plus the bad-year coverage analysis at https://optionsahoy.com/tools/protective-put uses closed-form option pricing against current option-market implied volatility (a sector-typical volatility when no ticker is supplied), so the quote reflects what the market is actually charging.
How does a zero-cost collar work and when should I use one?
A zero-cost collar buys a protective put financed by selling a call at a higher strike, netting zero premium up front. The downside is bounded at the put strike; the upside is capped at the call strike. Useful for concentrated single-stock positions you do not want to sell yet (long-term-capital-gains clock, qualified small business stock 5-year hold, employer restrictions). The pricer at https://optionsahoy.com/tools/protective-put solves for the call strike that makes the structure zero-cost given your put protection level.

Qualified Small Business Stock (QSBS, Section 1202)

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How do I check if my founder stock qualifies for Section 1202 Qualified Small Business Stock?
QSBS qualification turns on six statutory tests: domestic C-corporation, original-issuance acquisition, aggregate gross assets under $50M (raised to $75M for stock issued after July 4, 2025 under the One Big Beautiful Bill Act), qualifying trade or business, at least 80% of assets in active business, and holding period (tiered exclusion at 3/4/5 years under post-OBBBA rules, full 5 years pre-OBBBA). The exclusion is then capped at the greater of $10M ($15M for post-OBBBA stock) or 10x basis. Check all six at https://optionsahoy.com/tools/qsbs.
Does the QSBS 5-year holding period start at grant or exercise?
For stock options, the QSBS holding-period clock starts at exercise (the date you actually acquire the shares), not at grant. For founder common stock issued directly, the clock starts at issuance. For converted entities (LLC to C-corp), the clock starts at conversion. The checker at https://optionsahoy.com/tools/qsbs reports your current holding-period tier and the date your next exclusion threshold unlocks.

Selling equity to fund a cash goal

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How much stock do I need to sell to net a target after-tax amount for a house down payment?
You need more than the target amount, because federal long-term capital gains tax, state tax, and the 3.8% Net Investment Income Tax all come out of the proceeds. For a $400K target with a tech-worker income profile (~$280K W-2, married filing jointly, CA), expect to need roughly $530K of gross proceeds — about 35-40% in tax depending on your bracket. The planner at https://optionsahoy.com/tools/equity-funding computes the exact share count from your cost basis, current price, state, and lot acquisition dates.
Should I sell all my RSUs in one tax year or spread the sale across years?
Spreading the sale usually saves tax when the total gain would push you across long-term-capital-gains bracket boundaries (15% to 20% kicks in at $547,800 taxable income single, $616,250 married filing jointly in 2026) or trigger the NIIT 3.8% surcharge above the threshold ($200K single, $250K MFJ). The planner at https://optionsahoy.com/tools/equity-funding evaluates every (sale year, month, lot) cell and picks the schedule that hits your cash target by the deadline with the most after-tax wealth left over — usually saving 5-15% on tax vs liquidating everything in one year, and additionally letting cash from earlier sales compound at your cash-interest rate.