I went to a stock options workshop at work. Now that the stock price has risen such that my vested options are worth a whopping $344K at fair market value (rising to $500K by year's end when more shares vest, assuming the price holds steady), I figured that it's finally time to learn how to deal with them.
I went into the workshop all happy and excited. I left decidedly less so, because I realized that I dun goofed pretty badly when it comes to tax planning.
My original plan was to buy out all of my ISOs with about $50K in cash in September, after the remaining shares vest, and hold them for long-term capital gains. I was also going to start selling off my NQs up to the Roth IRA AGI limit each year and move the money into more diversified investment vehicles.
Now that I've learned all about the AMT, I've realized that I can't do that.
I want to preface what's coming next by first saying that (my earlier
But the phantom tax on ISO spreads? OMG, that's TOTAL BULLSHIT.
I know, I know, cry me a river -- but I am relatively certain that after I buy out my ISOs, I cannot afford the AMT that gets triggered on the $330K spread. I am FINE with paying taxes if I've actually made money, but I'd like to buy and hold in this case, which means that not only have I not made a dime, I've sunk in my own capital, and not even a nutjob like me has the kind of liquidity to afford the tax bill under the AMT. Not to mention the fact that triggering the AMT effectively negates all that is nice about ISOs relative to NQs.
I'm immensely frustrated right now, because I should've learned about all this way earlier. I should've been buying out my ISOs two years ago when the spread was much lower. I let the ball drop on this, and I'm kicking myself. As it stands, I'm gonna be spending the weekend plugging numbers into the AMT worksheet and seeing if there's any way to make this situation suck less.
I got all excited when I saw the stock price shoot up earlier this year. I thought that I could shave a few years off my FIRE date. I thought that if the market doesn't tank, maybe I could FIRE as early as 2017. Now I will probably have to throttle my ISO buyout to stay under the AMT threshold, and at the rate the stock (and my salary) is rising, I have no clue how long that's going to take.
I'm really trying to keep some perspective on all this. Yes, I got blindsided by the AMT with regards to exercising my ISOs, but even in the absolute worst-case scenario, in which I assume that half of my options are lost to taxes, my projections still have me reaching my FIRE goal of $1 million in three years, which is still two years ahead of how long it would take without any options at all.
I'll re-evaluate everything once I've worked out the AMT numbers. It is what it is and I'm still a lucky bastard no matter what. Once this is all sorted and I have a plan, I hope to not complain about taxes again for a long, long time.