Stock Options Calculator (ISO vs NSO vs RSU)

ISOs (Incentive Stock Options): only for employees; potential AMT trap at exercise; qualified disposition (≥2yr grant + ≥1yr exercise) gets long-term capital gains on full spread. NSOs (Non-Qualified Stock Options): for anyone; ordinary income tax on bargain element at exercise + capital gains on later appreciation; simpler than ISOs but worse tax treatment. RSUs (Restricted Stock Units): ordinary income tax at vesting on FMV; subsequent gain is capital gains. Most large public companies have moved to RSUs.

When you exercise ISOs and HOLD the shares (rather than immediately selling), the bargain element (FMV − strike) is added to your AMT income - even though you have no regular taxable event. This can trigger Alternative Minimum Tax that you must pay out of pocket WITHOUT having sold the stock. Worse: if the stock then drops, you owe AMT on the higher exercise-date value but can't recover that cash. Many tech workers in 2000 and 2022 were destroyed by this.

Depends on type and circumstances. NSOs: usually exercise only when you can immediately sell (avoid having tax bill without cash to pay). ISOs: exercise early when the spread is small to start the long-term clock and minimize AMT risk; or after sale to ensure qualified disposition. RSUs: vest automatically, no exercise decision. Always model the cash flow + tax impact before exercising. Consult a CPA on grants over $50K bargain element.

Qualified Small Business Stock (IRC Section 1202): if you hold original-issue stock in a C-corporation (gross assets ≤$75M at issue in post-2025 OBBBA rules, $50M for prior years) for 5+ years, you can exclude up to the GREATER of $15M or 10x your basis from capital gains. Federal tax = $0 on qualifying gains. State conformity varies (CA does NOT conform). Massive benefit for early-stage startup founders and employees who buy shares early.