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First, assume I know all the regular disclaimers about seeking professional tax planning/CPA help. I have, but want to balance that with many second opinions :)

I have the following vested, unexercised ISOs at a company I've been at for almost 4 years:

  • 29,000 shares @ $1.40 strike price
  • 15,000 shares @ $3.11 strike price

FMV for the still-private company is $10.50. Company is going public this year.

Some other details about my situation:

  • I'm in the 33% tax bracket for ordinary income.
  • I do not have the cash to exercise and/or pay AMT
  • However, I do have access to the entire amount to exercise and pay AMT via an in-law via personal loan.
  • I would like to have a fair amount of liquidity within 2 years ($250K post-tax).

What should I do -- what would you do? Thanks!

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The main reason to exercise the shares sooner rather than later is that you have to hold the shares for 1 year to gain access to the long-term capital gains rate when you sell your shares. You do not want short-term capital gains rates to apply to these shares when you sell them.

If the company is unable to go public and sells privately, you may not have any choice but to sell your shares immediately. If the company goes public you will simply have to hold your shares for a year after you buy them before selling to get the lower tax rate.

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  • At my last startup, I exercised my shares as soon as they vested. This was a risky move, because I couldn't sell them, but it did pay off when the company was acquired and I had access to the long-term gains rate.
    – NL - Apologize to Monica
    Mar 14, 2017 at 20:48

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