ISO: Strike Now or Invest Instead

Avatar of u/jiujitsu
u/jiujitsu · Joined Oct 2024

See how much value you can unlock by exercising your ISOs now! Discover why acting early on stock options can amplify your gains and minimize taxes.

Last update Nov 2024
  • Scenario 1: Strike Now, Maximize Gains
  • Scenario 2: Skip ISO, Invest Cash
  • Which One Is Higher (%)

See the gains from striking your ISOs now vs. skipping and investing cash. Striking early leverages tax efficiency and equity growth, **assuming a future company exit**.

# Years from Now

Try your numbers:

Enter the price per share you’ll pay to exercise your stock options. This is the strike price set by the company at grant.

A =

Enter the current fair market value of the shares. This reflects their estimated worth today, often from a recent 409A valuation.

B =

Enter the annual growth rate you expect for the company’s valuation. Early-stage companies often target 20-50%, but results may vary.

C =

Enter the tax rate for long-term capital gains, applied if you hold shares for 1+ years post-exercise. Rates are 0% for lower incomes, 15% for most earners, and 20% for high-income individuals (plus possible state taxes).

D =
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Time Value Assumptions

Heads Up!

If you're using Cost Basis (cb) for calculating capital gains:

Please be aware that very few countries currently use inflation-indexed cost basis. Double-check your local tax rules before publishing.

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How is Cash Value calculated?

This scenario calculates the outcome of exercising your ISOs now. It assumes a 26% AMT on the spread between FMV and the exercise price, a common estimate based on standard AMT rates for most taxpayers. The final cash value factors in company growth, long-term capital gains on appreciation, and the tax impact at exercise. This approach highlights the advantage of locking in equity value early while accounting for typical AMT liabilities.

Decisions / Expectations

(Expressions are evaluated at Year 0 only.)

E =
F̃ =

Calculations

(Expressions are evaluated at every year.)

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