ISO early exercised without 83 (b)

[zaka634]

I early exercised my ISO in 2021 that will be vested in both 2021 and 2022, I did not file the 83(b) election form. 1. for these early exercised ISO, should I pay tax on AMT or regular income tax for the price difference ? 

2. since I did not file the 83(b), the amount i should pay is the FMV(at vested time) - strike price, since these ISO will be vested in a monthly cadence, where should I find the FMV ? Ask my employer or i have to trace back for all the transaction the find the FMV for every month when vested ? 

3. regardless of tax upon AMT or regular income, for 2021 tax filing, i only need to handle the portion that's been vested in 2021 ? For the rest part that will eventually be vested in 2022, i should handle them in 2022 tax filing, e.g. in 2023 April?

4. If these tax should go into AMT, where can i enter the information in turbotax ? Enter every month vested FMV - strike price and quantity for 12 months ? 

[DavidD66]

When you have Incentive Stock Options (ISOs), you cannot "exercise" those options until they vest.  Vesting is what gives you the right/ability to exercise the options.  There are multiple scenarios, each with different tax consequences, for exercising and selling your ISOs.  For more information, see the following TurobTax article:

Incentive Stock Options

[zaka634]

@DavidD66 Thanks for the reply, but I do have option that allow early exercise and I have already exercised them, but I did not file the 83b election in time, which make my case more complicated and beyond my knowledge.

[zaka634]

Anyone knows things on this topic ? ?

[RobertB4444]

@zaka634  When you 'early exercise' your stock options it just means you're fully vested earlier.  Your employer is giving a shorter vesting process as an additional incentive.  

There are a number of online tools that will give you the historical FMV of a stock using the ticker symbol and the date.  Just document which tool you're using and what the historical value is so you can reproduce it if necessary.  

For 2021 (provided you don't sell these stocks) the only thing that needs to be entered is the difference between the FMV on the date that you exercise it and the amount you were able to exercise the options for.  This is called the 'bargain element' and it reported only for AMT purposes.

To report this for 2021 (again, assuming you did not sell these shares in the same year), type 'Form 6251' in the search box and click the 'jump to' link.  Follow the prompts in order to get to the necessary section.

[zaka634]

@RobertB4444 , thanks for the reply! I did not sell these early exercise ISO.

If i'm understanding your reply correctly, for all the early exercised ISO, i should only need to file the spread between FMV and strike into AMT portion, e.g. use the 6251 form? No need to worry about the regular income tax bracket ? 

But will the FMV be the every month price when my early ISO vested or just the FMV when i early exercised ISO ? 

Let's say i early exercised 20,000 ISO in Jan/2021, FMV was $10, strike price $2, ISO vested in a monthly cadence. 
12,000 of them fully vested to me via the 12 months in 2021 and 80,000 will be vested in 2022.

For 2021, should I only need to file the 12,000 ISO vested in 2021 or all the 20,000 ISO ?  I read some articles saying that without 83(b) election, the spread will be the FMV (when ISO "real" vested ) less the strike prices, since the stock prices varied for 12 months in 2021, do i need to find every month stock price at vested time and calculated the spread accordingly ? 

Or i just calculate the whole AMT amount as ($10 - $2 ) * 20,000 ? If so, how will this be different from filing a 83(b) election ? 

I tried to do the "ISO exercise and hold" directly in turbo tax, it seems calculate the spread into regular Federal income tax, which is very confusing. Please advise, thanks. 

[zaka634]

Still not sure that these early exercised option should be treated as income tax or pure AMT. Since I did not file 83b, should i check the every month FMV and calculate the difference accordingly for the total taxable amount ?

[RobertB4444]

@zaka634  If you scroll down to 'Less Common Investments and Savings' the last option is 'ISO Exercise and Hold'.  You will enter all of your information here and TurboTax will enter it into form 6251 for you.

[RobertB4444]

Also, your basis should be calculated using the FMV on the date of the exercise.

[zaka634]

@RobertB4444 thanks for reply again, i saw this paragraph

"

It is critical, when early exercising an option that the Section 83(b) election is properly and timely filed. If it is not timely filed, then (i) instead of having income at the time of making the election, there will be compensation income to the holder of an NSO (or AMT income to the holder of an ISO) equal to the difference between the purchase price (i.e., the exercise price paid) and the fair market value of the stock on each vesting date and (ii) the capital gains holding period will begin after the restricted stock vests. Again, any compensation income would be subject to all applicable income and withholding taxes (which the company must ensure can be satisfied)."

Since I did not file 83b, I think I should calculate the spread for AMT tax based on FMV each month when RSU( converted via ISO) vested and my exercise price? 

If I use the FMV when early exercise as the basis, then file 83b or not will make no difference ?

[RobertB4444]

@zaka634  You are correct - you will need to calculate the FMV on each vesting date.  I buzzed right by the "I didn't file form 83b" bit and I shouldn't have.  Sorry about that.  

[zaka634]

@RobertB4444 

No worries, I really appreciate your replies, I got a couple different answers from different places and really lost myself, so trying to figure out what is the right action on this, and also trying to confirm with my employer.

Another version of answer I got is that since I did the early exercise for the ISO, these ISO had been converted into restricted stock, because  83(b) election was NOT filed,  no AMT on the exercise action, instead, when these restricted stocked vested, I should be taxed as ordinary income, but my W2 has no such information, and I can't find a place to fill this in these information in TurboTax, still lost my head in the middle of the mist. 

[RobertB4444]

@zaka634  Unfortunately that's correct.  Your stock vesting creates ordinary income.  You can enter that under 'Other Income' in TurboTax in order to get the tax bite out of the way.

[zaka634]

@RobertB4444  thanks for the confirmation and let me know the "other income" section TurboTax, going to confirm with my employer whether these restricted stock should be reported via W2 or not, otherwise, I'm responsible to pay the ordinary income tax immediately after vesting, on the other hand, I'm currently not paying any income tax on these restricted stock on vesting dates,  I think I will be penalized on these late tax payment events. Thoughts these restricted stock should be taxed as my RSU, but maybe my employer is doing things differently. 

[zaka634]

@RobertB4444 

Can't find a place in turbotax to fill in these early exercised ISO. For all the RS(restricted stock) acquired via early excised ISO,  i should report the ordinary income based on the spread between FMV(vesting date) - strike_price, but there is no place for me to enter this kind of information. 

Other income not already reported on a Form W-2 does not allow me to do anything since it's saying any income more than $2,300 should be reported on W-2, for the last other reportable income, it's very sketchy, just put a number which does not seem like a proper place. Thanks in advance.