Don't forget about the possibility of an AMT credit! If you do end up paying AMT from exercising ISOs, you can potentially recover that as a credit in future years when your regular tax exceeds your AMT. Worth factoring into your long-term planning.

Just went through this exact scenario last year and want to share what I learned the hard way. Your $130k capital loss won't help with the AMT from ISO exercises, but here's a key point everyone's missing: timing matters hugely for your specific situation. Since your startup hasn't gone public, you're dealing with illiquid stock. If you exercise now and the company's valuation drops before going public, you could end up owing AMT on phantom gains while holding worthless shares. I'd strongly recommend exercising only what you can afford to lose completely, regardless of the tax implications. Also, consider that your $130k loss can carry forward for years - don't feel pressured to "use" it this year. With 45k options at a $1.40 spread, you're looking at ~$63k in AMT income as others calculated. Maybe exercise 15k-20k options this year to test the waters, then reassess next year based on your company's progress and your financial situation. The AMT credit is real, but only helpful if you eventually have regular tax exceeding AMT - which might not happen for years with a startup that could fail. Better to be conservative here.

Anyone know if there's a penalty for not reporting this in previous years? I've been working in Brazil for 5 years and never included my FGTS in my FBAR calculations... 😬

This is really helpful information! I'm in a similar situation as an expat in Germany with mandatory pension contributions. Based on what everyone's saying, it sounds like the key principle is that if you have a "financial interest" in an account outside the US, it counts toward FBAR reporting regardless of withdrawal restrictions. One thing I'd add for the original poster - make sure you're using the correct exchange rates when converting your Brazilian real amounts to USD for reporting. The IRS has specific guidance on which exchange rates to use (generally the Treasury's year-end rates for the maximum balance calculation). Also, keep good records of your monthly FGTS statements throughout the year so you can accurately determine the maximum balance. Since employers deposit 8% monthly, your balance is constantly growing, so the maximum will likely be at year-end unless there were any withdrawals. Good luck with your filing!

Week 5 here and honestly this community has been more helpful than the IRS website itself 😭 @Ryan Andre thanks for the Tuesday/Thursday info - that's literally the first concrete timeline I've heard anywhere. Going to try that taxr.ai thing @Lauren Zeb mentioned because the "where's my refund" tool has been useless. At least now I know I'm not alone in this waiting game!

Week 2 of test batch here and honestly feeling way better after reading this thread! @Ryan Andre that Tuesday/Thursday processing schedule is incredibly helpful - finally have actual dates to work with instead of just refreshing constantly. @Charlotte White your success story after 6 weeks gives me hope! Going to definitely check out that taxr.ai tool @Lauren Zeb mentioned since the regular WMR has been completely useless. Thanks everyone for sharing your experiences - makes this whole waiting process feel less isolating when you know others are going through the exact same thing 🙏

From your description, sounds like you might have a reasonable salary already. But another advantage of S Corp status you should be taking advantage of - the pass-through income isn't subject to self-employment tax (15.3% between Social Security and Medicare). That's a huge savings compared to running the same business as a sole proprietorship where ALL your profit would face SE tax. That's why the salary vs. distribution balance matters so much. You need to pay FICA taxes on your salary, but not on distributions. Just don't go too low on salary or you'll raise red flags.

One thing that might help clarify this for you - think of your S Corp as essentially "transparent" for tax purposes. The IRS basically pretends it doesn't exist when calculating your personal taxes. Your $140k salary gets reported on your W-2 and taxed as regular wages. The remaining $335k gets reported on Schedule K-1 and flows to your personal return as pass-through income. Then your TOTAL income ($475k plus any other personal income) determines which tax brackets apply to different portions. So yes, most of your income will likely fall into higher brackets, but remember that tax brackets are marginal - you don't pay 37% on all $475k, just on the portion that exceeds the 37% bracket threshold. Also definitely look into that QBI deduction mentioned earlier - as a design business, you should qualify for up to 20% deduction on the pass-through portion, which can significantly reduce your effective tax rate on that $335k. Just make sure your total taxable income doesn't push you into the phase-out ranges where the deduction gets limited.

Just be aware that if you don't report this income and somehow get audited, you'll face penalties and interest on top of the taxes you should have paid. The fact that PayPal doesn't report "friends and family" transfers doesn't protect you - it's still your legal obligation to report ALL income. I learned this the hard way with my Discord server donations. Started small but grew to about $400/month. Never reported it because "PayPal doesn't report it" - ended up with a nasty surprise when I got flagged for an audit for unrelated reasons and they found the unreported income.

This is really helpful information everyone! I'm in a similar situation with my Rust server where I collect donations through various platforms. One thing I want to add that might be useful - even if you decide to treat this as hobby income rather than business income, you still need to keep detailed records of all your expenses. I learned from my accountant that the IRS can be pretty strict about what counts as legitimate expenses, especially for gaming-related activities. Make sure you're tracking things like server hosting costs, domain registration, any software licenses, and potentially even a portion of your internet bill if you can demonstrate it's used substantially for the server. The key is being able to show that these expenses are directly related to generating the income, not just general gaming expenses. Keep receipts and document everything - it'll save you headaches later whether you file as hobby or business income.