Should I early exercise unvested ISOs when the FMV is above the strike price?

Question

I have unvested ISOs from a job I started this year, and recent revisions to our policies have given employees the ability to early-exercise their options. However, it's been several months since my initial grant, and we've had a round of fundraising and a new 409a valuation since then. The upshot is that I'm already looking at a non-trivial spread between my strike price and the current FMV, which raises the possibility of running into the AMT.

While it's impossible to predict whether I will be at my company through a liquidity event, I would like to exercise some portion of my options at some point in time. I'm curious whether an early exercise now, near the end of the calendar year, will help spread out the AMT implications for my first year's worth of ISOs. I'm not sure if an early-exercise now would affect my tax bill this year (the year I exercised), or next year (the year the options technically vest). The former is desirable, as it would give me more freedom to exercise even more options next year with more headroom under the AMT.

I'm aware that filing an 83(b) will force the exercise to be treated as a taxable event this year, but it's unclear to me how income from the spread will be categorized. The fine print says it will count as "gross income", which I read as "taxable under the regular tax rules"--definitely something I want to avoid. In any case, some sources claim that the 83(b) can only be filed 30 days from the date of grant (as opposed to the date of exercise), so it might be a moot point anyway.

So my questions are:

1. If I early-exercise my options this year, do they affect my AMT calculations in the year of exercise, or next year (when they vest)? In other words, is there any point for me to early-exercise if an 83(b) is out of the picture?
2. Am I eligible to file an 83(b), and if so, does it cause the spread to be counted toward my regular income, or my AMT income?

Answer 1

In the question you cited, I assumed immediate exercise, that is why you understood that I was talking about 30 days after grant. I actually mentioned that assumption in the answer.

Sec. 83(b) doesn't apply to options, because options are not assets per se. It only applies to restricted stocks. So the 30 days start counting from the time you get the restricted stock, which is when you early-exercise.

As to the AMT, the ISO spread will be considered AMT income in the year of the exercise, if you file the 83(b). For NQSO it is ordinary income. That's the whole point of the election.

You can find more detailed explanation on this website.