Stock Option Analyzer

RSUs are the most common form of equity compensation at public companies. The employer grants you a promise to deliver shares on a future date, subject to a vesting schedule (typically four years with a one-year cliff).

No decision at grant. You do nothing when RSUs are granted. There is no 83(b) election available. There is no strike price. You cannot early-exercise.

Taxed at vest, not at sale. When your RSUs vest, the full fair market value of the shares is treated as ordinary income in that year. Your employer typically sells a portion automatically to cover withholding (often called "sell-to-cover"), and the rest land in your brokerage account.

The real decision is post-vest. Once the shares hit your account, you decide whether to sell or hold. Selling immediately avoids further stock price exposure. Holding more than a year taxes any appreciation above the vest-date price at the lower long-term capital gains rate, but exposes you to the stock dropping. This is the decision most RSU holders miss.

The shares you receive at vest are taxed as wages on your W-2 — reported in boxes 1, 3, and 5.

An NSO gives you the right to purchase company stock at a fixed price (the strike price or exercise price) for a fixed period of time (typically 10 years from grant). NSOs can be granted to employees, consultants, advisors, and board members.

Taxed at exercise. When you exercise an NSO, the spread between the current share price and your strike price is taxed as ordinary income in that year. This applies even if you don't sell the shares. Your employer typically withholds taxes at exercise, similar to how wages are withheld.

Subsequent gain or loss. After you exercise, any further change in the share price is taxed as a capital gain or loss when you eventually sell. Hold more than one year after exercise to qualify for the lower long-term capital gains rate.

Common strategy: same-day exercise and sale. If the stock is liquid and you don't want exposure, exercising and selling the same day captures the spread as cash with no further stock price risk. You give up the possibility of future appreciation.

No AMT impact with NSOs. That's the tradeoff for the less favorable ordinary-income treatment at exercise.

ISOs are similar to NSOs but come with potential tax advantages and additional complexity. They can only be granted to W-2 employees (no contractors, no board members).

No regular income tax at exercise, but watch AMT. Unlike NSOs, exercising ISOs does not trigger regular federal income tax. The catch: the spread is treated as income under the Alternative Minimum Tax (AMT), a parallel tax system. If the spread is large, you can owe significant AMT in April even though you haven't sold any shares.

The qualified disposition rules. To get the best tax treatment, hold the shares more than one year after exercise AND more than two years after the original grant date. Meet both deadlines, and the entire gain from strike to sale is taxed at the long-term capital gains rate. Miss either deadline, and the sale is a "disqualifying disposition" that is taxed more like an NSO.

AMT credit recovery. AMT you pay from an ISO exercise is generally not lost. You build an AMT credit that can reduce your federal tax in future years when your regular tax exceeds your AMT. Recovery can take several years.

The $100,000 rule: Only the first $100,000 of ISO grant value that first becomes exercisable in a calendar year qualifies as ISO. Anything above that amount is treated as NSO for tax purposes.

An 83(b) election is an IRS filing that shifts the timing of tax recognition from when shares vest to the earlier date of exercise or grant. It is only available in specific situations:

• Restricted stock awards (not RSUs — RSUs are not eligible)
• Early-exercised stock options (both ISOs and NSOs, if the plan permits early exercise)

Why it can be valuable. If the shares have a low value today but are expected to appreciate significantly, paying tax now on a small amount is much better than paying tax later on a much larger amount. All future appreciation can qualify for long-term capital gains treatment instead of ordinary income.

The 30-day deadline is hard. You must file the election with the IRS within 30 days of the grant or exercise. Miss the deadline and the election is not available. There is no extension.

The risk. You pay tax now on shares that may never vest, and you cannot get that tax back if you leave the company before vesting. The election makes sense only when you believe the shares will appreciate and you expect to stay through vesting.

This filing cannot be undone. Consider talking to a tax professional before electing, especially for grants with significant current value.

This tool gives you a useful starting point and helps you ask better questions. It is not a substitute for personalized tax and financial advice, particularly when:

• The equity represents a significant portion of your net worth
• You expect AMT exposure above around $25,000
• You have complex deductions, other business income, or foreign income
• You are considering an 83(b) election
• A liquidity event (IPO, acquisition, tender offer) is on the horizon
• You are near retirement or plan to leave the company soon
• You live in a state with unusual equity compensation rules (California, Pennsylvania, Ohio)

A CPA can handle the tax preparation. A CFP professional can help you think about the bigger picture: concentration risk, retirement funding, and how this equity fits into your overall financial plan.