Day 5: Advanced Stock Option Tax Strategies – How to Pay Less to the IRS

Understanding the Tax Implications of Stock Options

Day 5: Advanced Stock Option Tax Strategies – How to Pay Less to the IRS

Now that you understand the basics, let’s explore powerful tax strategies to minimize your stock option tax liability.

1. AMT Strategy for ISOs

💡 Exercise small amounts over multiple years to stay under the AMT threshold.  This is an intricate strategy that would ensure this blog post turns into a book, so be sure you partner with a professional if you’re interested in these kinds of advanced strategies.

📌 Use AMT credits in future years to offset taxes once you sell. But this doesn’t help as much in certain cases, so again, important to talk to someone before taking on these advanced strategies. 

2. 83(b) Election – A Startup Founder’s Best Friend

🚀 83(b) allows you to pre-pay taxes on stock at grant, potentially reducing future tax liability.

✅ Best for early-stage companies where stock value is low.

📌 Example:

• Emily is granted startup stock at $0.01 per share.

• She files an 83(b) election, paying almost no tax upfront.

• If the stock later explodes in value, she pays only long-term capital gains tax.

📌 Cited in IRC: 83(b) election is covered under IRC § 83(b).

Final Thoughts: Optimizing Your Stock Option Tax Strategy

This wraps up our 5-part series, but the world of equity compensation tax planning is deep.

Have questions about your stock options? Drop a comment or send me a message!🚀