How do taxes work on options? Are they taxed as short term capital gains when exercised and sold immediately?

Thanks for the info! I'm a bit confused though. If the difference between exercise price and FMV gets reported as ordinary income on the W-2, does that mean I can't use my capital loss carryover against it at all? I have about $20,000 in short-term capital losses I've been carrying forward. Also, how exactly does the AMT work in this situation if we were to exercise but hold? We're already in a pretty high tax bracket from our regular income.

You're right to be concerned - ordinary income on a W-2 cannot be offset by capital losses. Capital losses can only offset capital gains, not ordinary income. So if you do the exercise-and-immediately-sell approach, you won't be able to use your $20,000 loss carryover against that income. Regarding AMT, when you exercise ISOs but don't sell, the "paper gain" (difference between exercise price and fair market value at exercise) becomes an AMT adjustment item. This means you calculate your tax two ways - regular method and AMT method - and pay whichever is higher. If your regular income is already high, adding a significant ISO exercise could definitely trigger AMT. The exact calculation depends on your overall tax situation, but it can result in paying tax on money you haven't actually received yet (since you haven't sold the shares).

Did it actually give you specific advice about your situation or just general information? I've got a similar situation with my startup options but I'm confused about whether to exercise before or after our upcoming funding round.

Is this legit or just another subscription trap? I've been burned by "financial tools" before that give you basic info then want $30/month for anything useful. How much does it cost?

It gave me very specific calculations based on my actual grant documents and salary information. For example, it showed exactly how much AMT I would owe if I exercised but didn't sell in the same year, versus the regular tax I'd pay with different holding periods. It also calculated my break-even point for when exercising early made sense. There's no subscription trap - you can upload your documents and see the analysis. The interface is straightforward and actually walks you through different scenarios. I think they focus specifically on equity compensation rather than trying to be an all-purpose financial tool, which is why it was so helpful for my ISO situation.

Wait, how does this actually work? The IRS wait times are insane right now - I tried calling about this very issue and gave up after being on hold for over an hour. Does it really get you to the front of the line somehow?

Sounds fishy. How could a third-party service possibly get you faster access to the IRS than going through official channels? I doubt the IRS gives special treatment to certain callers.

It doesn't get you to the front of the line exactly. What it does is automate the calling and waiting process. Their system basically calls the IRS repeatedly using their technology until it gets through, then it connects you. So instead of you personally waiting on hold for hours, their system does the waiting for you and then you get a callback when they reach an agent. No special treatment from the IRS - just a way to avoid being the one waiting on hold. The IRS doesn't know or care that you're using a service - they just see a caller who waited through the queue like everyone else. The difference is that it wasn't you personally waiting on the phone for hours. It made a huge difference in getting my ISO questions answered during tax season when wait times were astronomical.

Good point! My spouse's company does have blackout periods. I know they're currently in an open trading window that ends in about 3 weeks. If we do decide to exercise and sell immediately, we'd need to do it within that timeframe. Do you know if the blackout periods apply to just selling, or do they restrict exercising options as well?

In my experience, blackout periods typically apply to both exercising and selling. The company doesn't want any appearance of insider trading, so they restrict all transaction types during sensitive periods (like right before earnings announcements). Some companies have different rules for exercise-only transactions versus sales, but this is something your spouse should specifically check with their stock administrator or HR department. Don't make assumptions here - the rules can be very company-specific and the penalties for violating them can be severe. Have your spouse email their stock admin team directly to confirm what transactions are allowed during blackout periods. They should be able to provide clear documentation of the policy.

This happened to a friend of mine! Exercised ISOs in December, couldn't sell until February, got hit with a massive AMT bill on April 15th with no cash to pay it. Had to take a loan to cover the taxes. Brutal situation.

83(b) elections apply to restricted stock, not ISOs. ISOs already have their own special tax treatment. You might be thinking of early exercise of unvested options into restricted stock, which is when 83(b) would be relevant. But based on the original post, it sounds like we're dealing with vested ISOs from a company that already IPO'd, so 83(b) wouldn't apply here.