ISO Exercise Calculator

firebus's picture

Oy! It took me forever (literally a week, and probably 4 different tries) to get the algebra right on this.

Let's say you have Incentive Stock Options.

When you buy stock through the ISO plan (exercise the options), you have to pay some money to the company. You will also probably owe some Alternative Minimum Tax, proportional to the difference between the strike price and the market price when you exercise the option.

You can sell some shares immediately to offset the purchase price and the AMT liability. You also have to pay income tax on the earnings from the shares you purchase, soooooo

Overview

  • This calculator determines how many stocks you should sell after purchasing an ISO avoid any out of pocket expense for the purchase, regular tax on the sale and AMT on the shares held.
  • When you purchase stocks through an ISO, you owe no income tax on the difference between your strike price and the market price on the date you purchase.
  • However, that difference (the spread) *is* considered income for calculating AMT. The rules are such that any reasonably-sized purchase through an ISO will probaby trigger AMT.
  • If you sell the stock purchased in the same tax year as the purchase, the profits are taxed as regular income, without any AMT consequences.
  • This calculator is way too simple to accurately calculate AMT. Instead it assumes that you're going to pay AMT on the spread of any options you keep. This is a pessimistic assumption for most tax payers.
  • I am an accounting hobbyist and not a tax professional. These calculations are just for fun! Don't trust me! Don't blame me! Don't tase me!

Glossary

Options purchased
How many shares you are purchasing
Strike price
Selling the stock after the end of the holding period
Market Price
The stock price on the open market on the day that the stock is purchased, and
the price at which you sell the stock (a bad assumption, since you'll probably
need to wait a day or two to sell).
Regular tax rate
Your tax rate for ordinary income
AMT tax rate
The current tax rate for calculating AMT (default 26%, but increases to 28%
for income over $175,000 - we're not sophisticated enough or wealthy enough
to calculate that yet :).

Calculator

Options purchased:
Strike price: $
Market price $
Regular tax rate: %
AMT tax rate: %

Results

Results

Purchase cost:
Options sold:
Income from sale:
Regular tax on sales:
AMT on options held:
Net:

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