Calculate ESO profits with options and taxes
Stock options give employees the right to purchase company shares at pre-set prices (strikes). When market value rises above strikes, intrinsic value is the difference - your potential gain. However, actual profits become real only after accounting for multiple tax factors depending on your vesting type.
For non-qualified options, intrinsic value triggers current ordinary income taxes (up to 40.8% in CA) AT EXERCISE. You'll need cash or borrowing to exercise these options since funds aren't provided upfront. Selling stock locks in gains but triggers capital gains tax on post-exercise appreciation. Use our tool to factor both layers of taxation.
Incentive Stock Options (ISOs) allow employees to defer income taxes upon exercise by holding stock for at least 1 year after exercise. For ISOs exercised and held more than 2 years, capital gains become the sole tax consideration. However, failing these holding requirements converts ISOs to AMT (Alternative Minimum Tax). We model both scenarios.
| Scenario | # Options | Intrinsic | Taxes | Gain |
|---|---|---|---|---|
| NQSO Exercised Immediately | 1,000 | $10,000 | $3,500 | $6,500 |
| ISO with 2-Year Hold | 500 | $5,000 | $0 (Deferral) | $5,000 |