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Welcome to the 48th edition of the Tech Financial Planning (TFP) newsletter.

I've been spending a lot of time with clients lately planning for their stock options so I thought I’d share a few situations that caught my attention.

Sales Director, 41, San Diego

I have a client who recently left a company.

She has 90 days to exercise her remaining stock options.

Good news - the company she left is public, so if we need to, we can always just exercise and sell everything (although that might lead to higher taxes).

Since it’s the end of the year, we could also potentially split any exercise and/or sales between 2023 and 2024 to potentially lessen the taxes.

But in a short time frame, there’s only so much we can do.

Engineers, late 30s, East Coast and West Coast

We’re working with a couple employees at a fast growing, private company.

The good news is they have a ton of equity - this could set up their respective families for life.

But it’s complicated.

If they wanted to exercise everything today, the total cost (exercise cost + taxes) is more than the cash they have on hand
If they only exercise up to the AMT crossover point, they will eventually run into an AMT bomb - they can’t exercise enough each year before their options eventually expire.
If they try to space out the exercise, these exercises will still likely incur a decent amount of tax
While the company is on an excellent track record (and there have been previous tender offers), there’s no guarantee that going forward, this stock will ever be worth anything

Procore employees, late 20s and early 30s, nationwide.

There’s a couple of families we are working with who were at Procore pre-IPO and are still working at Procore.

The good news is that they still have stock options that they can exercise that are worth a lot of money (aka in the money).

The bad news is that, without action, they are set to expire at various times over the next few years.

And if we wait until the last minute, that could create a massive tax bomb if they exercise all at once.

Putting It All Together

Planning for stock options is hard.

And there’s no instruction manual.

While stock option planning is a year round event, I find that Q4 and Q1 (aka now until the end of March) are huge for stock options planning.

If you have incentive stock options (ISOs), now could be a good time to exercise some if you are trying to exercise up to the AMT crossover point.

And Q1 could be a great time to exercise ISOs so you can start the clock for long term capital gains / qualified disposition (and potentially sell before tax day 2025).

But make sure you don’t exercise alone.

Find someone to work with - probably both a financial advisor and a tax preparer.

I’ve seen the cost of a big mistake run into the tens or hundreds of thousands of dollars.

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If you or someone you care about could use help with their stock options, please reach out to us; we’re taking on new clients and eager to help.