I am trying to play some scenarios to compare opportunity costs and hopefully decide on which route, to maximize my gains (after all taxations).
I formulated a spreadsheet to help me calculate a few things but it looks like I may be better off with NSOs than ISOs. Intuitively that doesn't make sense. I'd like some scenarios and pointers on how I could go about this evaluation.
Question: If I have a fixed amount to play with (say $3000) then should I exercise in NSOs or ISOs?
Scenario: Strike price of NSOs and ISOs = $3 FMV = $5 Projected FMV in a month or so (409A coming up) let's assume is going to be $7 Assumption also that the stock continues to rise. So let's say a longer term value of $12
It looks like I won't hit AMT for this small amount (I haven't hit it previously and ran some numbers by a tax advisor).
I fully understand the benefit of exercising as early as possible for leveraging Long Term Capital Gain Tax. Where would I benefit by investing the $3000 more?
1 - ISO - I'll get 1000 stocks and won't trigger AMT. Then selling it at $12 a piece would be $12000. After tax (approx 20%), I'll get $9600
2 - NSO - Budgeting for the withholding ($2 (FMV - Strike) * 750 NSOs) = $1500 reported income. So at ~ 40% tax I'll have to cover $600 for withholding. So $600 + 3*750 = $2850. So I can only exercise about 750 NSOs. I'll hold it for more than a year and eventually with the same $12 sale price, proceeds = $9000. At LTCG I'll pay ($12-$5)7500.2 = $1050 in tax + the withheld $600 = $1650 in total tax. Effective gain = 9600 - 1650 = $7950.
I am not sure if this was a correct way to do the assessment but I am beginning to get confused. Any hints?
I have more options (NSOs and ISOs) than I can buy right now. So my other thought is whatever I buy now, will leave the other set for a same day sale eventually (in a liquidation event). So I want to account for the taxes at that time too on the ones I leave un-exercised.
California, United States, Married filing jointly