Author said he had NSOs. AMT only applies to ISOs. The income from NSO exercise is taxed at ordinary income tax rates. Depending on his other income, the tax can be lower or higher compared to AMT rates.
If you have cheap options you can try to exercise them early (before the delta is big) and/or in small chunks over time so you don’t get hit with the AMT.
True, but you also have to wait for your options to vest. I did make the mistake of waiting too long. With a 5-year vesting schedule it's possible to still get a stiff tax for the last few years.
This is one area where I think the company didn't make the consequences clear. But I also understand that they were trying very hard to not appear to be giving tax advice. Also, my company specifically asked us NOT to do small purchases. I guess there were people doing monthly exercises with each paycheck and the company didn't like that (it wasn't forbidden, just frowned upon).
That's why, if you can, exercise options before they vest. I bought 3 years of my 4 year initial allocation at my current startup a month after the grant was issued (four months after I joined). I bought at $0.00 gain per share, meaning no tax hit. (Just file that 83(b) form.)
The tax if exercising at this point two years down the road might have hurt.
You can't "exercise options before they vest" because you don't have the option until vesting.
What you describe -- and as someone that was bit by the AMT wrt ISOs, I recommend -- is exercising as soon as they vest to minimize the gain between the strike price and the fair market value at time of exercise. If the FMV goes up, you're going to be stuck paying the AMT on the spread, and not even be able to sell your shares to cover the tax, because pre-IPO stock is effective illiquid. If you wait until after the post-IPO lockout date to exercise, you'll pay even more in taxes, but at least you can sell some stock to cover it. Ironically, this is actually less painful, because you actually have liquidity.
When you leave the company can choose to buy back (essentially refund you for) unvested shares, in which case they take back the unvested shares. I imagine any company doing well will buy back the unvested shares.
If the company needs the cash more then maybe they'll let you keep the unvested shares, but since your usually-Common-Stock strike price is typically a lot less than what investors will pay for their Series-X shares it's likely they'd rather take back the Common Stock (?) even in cases of one or more transpired or likely down rounds (?).
