This is absolutely correct. I made the mistake of exercising right at our IPO and selling within the year. Ended up paying nearly 45% (combined federal, state, local) in taxes on the full value. A colleague who exercised a year earlier paid ordinary income on the smaller pre-IPO spread, then only 15% on the huge jump from exercise to IPO price. Difference was over $100k in taxes on roughly similar option grants.

That's a really important point about the 409(a) potentially increasing! I hadn't considered that but it makes total sense as we get closer to IPO. I like the idea of a partial exercise strategy. Regarding cashless exercise - I've heard rumors that we'll have that option at IPO, but nothing confirmed in writing. I should probably ask our finance team about this. Would that essentially mean I could exercise and immediately sell enough shares to cover the exercise cost and taxes?

Exactly - a cashless exercise at IPO would let you exercise options and immediately sell enough shares to cover both the exercise cost and the resulting tax bill, without needing to come up with cash out of pocket. Very common for IPOs. If that's an option, you might want to hold some options for that route, especially if you're cash-constrained. The tax hit will be higher, but you won't need liquidity. Many people do a mixed approach - exercise some now for tax advantages (if you have the cash), and save some for cashless exercise at IPO to diversify risk. Definitely get confirmation from your finance team though - some companies require you to exercise before IPO to participate in the offering!

3 Yes, this is related but slightly different. With backdoor Roth, you make a non-deductible Traditional IRA contribution first, then convert it to a Roth. You'll need to file Form 8606 to report the non-deductible contribution. For basis calculation: your basis in the Traditional IRA is what you've contributed after-tax (non-deductible contributions). When you convert to Roth, you'll pay taxes on any earnings plus any pre-tax money in ANY Traditional IRA accounts you have (pro-rata rule).

10 Thanks! I didn't realize I needed to file Form 8606 for the backdoor Roth. And I completely forgot about the pro-rata rule. I have an old Traditional IRA from a 401k rollover that would definitely complicate things.

1 That's really helpful to know! I wonder if I can still call Fidelity now about my 2023 distribution and have them update the coding retroactively? Has anyone tried this?

Thanks for bringing this up! The letter they gave me does say "donation to support school fundraising activities" and doesn't specifically mention raffle or prize. So I'm guessing that's the right wording? Should I request any additional documentation from them before filing?

That wording sounds perfect! It acknowledges your charitable intent while not specifically tying it to the raffle mechanism. You should be good to go with that documentation. I wouldn't request additional paperwork as that might just complicate things. Just make sure you have your receipts showing your costs alongside the donation acknowledgment letter. For business expenses under $250, the documentation requirements aren't as strict, but since your total was $275, having both the letter and receipts provides the complete documentation package you'd need in case of questions.

There's no minimum for business deductions. But honestly for $50, you might spend more time documenting it than it's worth in tax savings. If your tax rate is say 20%, you're talking about saving $10. But if you're already tracking all expenses carefully anyway, might as well include it!

Do you know if I can claim this credit if my kids split time between me and my ex? We have 50/50 custody but alternate claiming them as dependents each year. This year is my year to claim them.

Yes, you can claim the Credit for Other Dependents in a shared custody situation when it's your year to claim the children as dependents. When parents alternate years for claiming dependents (which is common in divorce agreements), the parent claiming the dependent for that tax year gets all the associated tax benefits, including the Credit for Other Dependents. Just make sure you have the proper documentation that shows it's your year to claim them according to your custody agreement. This prevents both parents from accidentally claiming the same child, which would trigger IRS notices.

Yes, the Credit for Other Dependents starts phasing out at $200,000 for single filers and $400,000 for married filing jointly. It phases out at a rate of $50 for each $1,000 your modified AGI exceeds these thresholds. So at $150k you should still get the full credit amount!

Do you know if TaxSlayer handles crypto transactions well? I did some trading last year and heard that can be a nightmare to report correctly.

TaxSlayer does handle crypto transactions, but I found it to be somewhat limited for more complex crypto situations. It works well if you have straightforward trades from major exchanges that provide good documentation. If you have extensive crypto activity across multiple platforms or DeFi transactions, you might want to use specialized crypto tax software first (like CoinTracker or Koinly) to generate the necessary forms, then import those into TaxSlayer. That's what I did this year after struggling with manual entry last year, and it was much easier.

This is super helpful! Is there any way to know if I qualify for free file without going through the whole process first? I'm right on the edge income-wise.