Falling 409a valuations have prompted many privately held tech companies to reprice their employees' stock options. Navigating stock option repricing necessitates a clear understanding of its implications, risks, and careful consideration of your personal circumstances and potential tax consequences, especially in the case of ISOs.
"People who exercise ISO grants don't usually pay federal tax upon exercise." I've met enough people stuck with tens of thousands or even hundreds of thousands of dollars of unexpected taxes from ISO exercises to know this is a common and potentially devastating misconception.
A client recently asked me if it would ever make sense to exercise underwater stock options and if it could lower their AMT. Many companies have experienced downward revisions to their 409a valuations over the last year-and-a-half due to the shakeups in the tech sector, so I'm hoping this will help other people who have underwater stock options and are wondering the same thing.
If you have equity in a startup that shut down, you can claim it as a loss on your taxes. But, it's not as simple as just writing them off as a total loss when you find out about it – the IRS wants you to claim the loss in the year the stock became worthless.
The minimum tax credit, or MTC, is a non-refundable tax credit created when AMT is paid on deferral items. In tax years after AMT is owed, the MTC is recovered by reducing the taxes you otherwise would owe. It could take just one year to recover your MTC, but it often takes several years, even decades.
When RSUs vest, the full value of the shares (number of shares vesting times the share price) is taxed as wage income. This is exactly the same as how an equivalent cash bonus is taxed.
