Will I be taxed on ISOs I exercise if I don’t sell them?
September 18, 2006
Date: Tue, 18 Apr 2006
I left a company in California two months ago and returned to New Jersey to work for another company. I am considering exercising vested incentive stock options from the previous company. Will I be taxed on the exercise even if I don’t sell the shares that year? The company will be going public in a few months.
Date: 01 May 2006
The excess of the fair market value of the stock over the option price on the date of exercise will be taxable on the alternative minimum tax schedules on your federal and California income tax returns. (That’s right! It’s AMT taxable income in California!)
That doesn’t mean you shouldn’t go ahead, but someone should be helping develop the cash you will need and advising you about whether it makes sense. You don’t have much time because you must have been an employee of the company within three months before the date of exercise. Some options lapse sooner after separation from service.
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