ISO early exercised without 83 (b)

Forum|Forum|4 years ago
March 17, 2022
3 replies
133 views

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

Level 15

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

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

zaka634Author

Level 2

@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.

zaka634Author

Level 2

Anyone knows things on this topic ? ?

RobertB4444

Level 15

@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.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

zaka634Author

Level 2

@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.

zaka634Author

Level 2

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

Level 15

@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.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"