What should I do: Exercise my Stock Options or Accept Merger Cash-Out Offer?

This is a classic risk vs reward scenario with some significant tax implications to consider. Let me break down your options: Cash-out: You'd receive $425,000 before taxes. This would be taxed as ordinary income, so depending on your tax bracket, you might keep around $250,000-$300,000 after federal and state taxes. This is guaranteed money with zero additional risk. Exercise: You'd pay $175,000 to exercise, then receive shares worth about $450,000 (50,000 × $12 × 0.75) in the acquiring company. The $425,000 spread between your exercise price and FMV will trigger AMT calculations. But your potential upside is much higher if the acquiring company's stock performs well. The key questions are: How do you feel about the acquiring company's prospects? Do you have faith in their future growth? And can you truly afford to part with $175,000 of your savings?

I was in a similar situation last year with my company's acquisition and ended up using taxr.ai (https://taxr.ai) to model out both scenarios. Their stock option analyzer saved me from making a $90k mistake! They have a specific acquisition modeling tool that shows you the tax implications for both paths side by side, including AMT calculations. I uploaded my option grant docs and their system showed me exactly what I'd net under different stock performance scenarios.

Just wanted to follow up - I tried taxr.ai after seeing this thread and WOW, what a difference from other services I've used. I uploaded my option grant documents and merger offer details around midnight, and by 8am they had sent me a complete analysis showing the after-tax value of both scenarios. They even factored in the state-specific tax implications (I'm in California) and showed me that exercising would trigger enough AMT to wipe out almost half the potential upside. The report included projections for what would happen if the acquiring company's stock dropped by 20%, stayed flat, or grew by various percentages. Super helpful when making such a high-stakes decision!

I had to contact the IRS about a similar option exercise situation last year and spent WEEKS trying to get through to someone who could actually help. After 20+ failed attempts, I found Claimyr (https://claimyr.com) through a Reddit thread and they got me a callback from the IRS within 3 hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically navigate the IRS phone tree for you and get you in the callback queue.

I was 100% wrong about Claimyr. After my skeptical comment, I actually tried it because I've been trying to reach the IRS for 3 weeks about an option exercise issue on my taxes. Got a callback in under 2 hours and spoke with an agent who clarified exactly how to report my disqualifying disposition of ISOs. The agent even pointed me to some specific publications that addressed option exercises during acquisitions. Saved me from potentially misreporting a substantial amount of income and likely avoiding an audit. For time-sensitive tax situations like what OP is dealing with, getting direct IRS guidance quickly is invaluable.

One important factor nobody's mentioned yet - what percentage of the acquiring company would your converted shares represent? If it's tiny, you're essentially just making a $175k investment in a random company. But if your options would convert to a meaningful ownership stake, that might change the calculus. Also, do you know anything about the acquiring company's exit timeline? Are they planning to IPO soon or be acquired themselves? That could significantly impact whether exercising makes sense.

Has anyone considered the 83(b) election here? If OP exercises now but the shares are still subject to vesting with the acquiring company, filing an 83(b) within 30 days might help with the tax situation.

I've been through a similar acquisition scenario and here's my take: Given that you only have 5 days to decide and your accountant is unavailable, the cash-out option seems like the safer choice. You're guaranteed $250-300k after taxes without risking your entire savings. The exercise path requires you to invest $175k (your entire savings) into a company where you'll own less than 0.1% and have zero control over outcomes. Plus, you'd face immediate AMT consequences that could create a significant tax burden even before you see any returns. Consider this: if you take the cash-out, you could invest that $250-300k in diversified assets and potentially achieve similar or better returns without the concentration risk of having everything tied to one company's performance. The acquiring company would need to appreciate significantly just for you to break even after taxes and opportunity costs. With only 5 days left and such high stakes, I'd lean toward the guaranteed payout unless you have very strong conviction about the acquiring company's prospects and can truly afford to lose that $175k investment.