You want to cash in on the vested incentive stock options (ISOs), that have been sitting in an account waiting to be released when your company goes public. This is one of the main reasons you are giving 110% of your talents and efforts to your private company.That's fine. It is not unrealistic to dream of a windfall that can be used to buy a house, pay off college loans, travel the world, or become a full-time volunteer philanthropist.Most employees don't know how to cash their stock awards.They are often not able to get the answers they require from their employers, especially when it comes to financial matters. While most companies acknowledge they need to explain how ISOs work better, they cannot legally work with employees one-on-one to help them exercise or sell shares in the correct way.While most companies acknowledge that they need to explain ISOs better, they cannot legally work with employees one-on-one to help them exercise or sell shares in the correct way.Many employees look for financial advice from qualified fiduciaries when they are ready.Here's an example of real life (using a pseudonym).Kurt, a 50-year old VP of Product Management at a startup in healthcare that just went public, is now a senior executive. Kurt has amassed 350,000 ISOs over his three-year tenure with the company. This is approximately $6 million. He didn't plan to retire early and cash in all his options millionaires like many other options millionaires. He wanted to remain with the company but to sell enough ISOs to buy a vacation home as well as diversify his investment portfolio. Kurt was not aware of the tax implications.Kurt could have his ISOs exercised and sold shares before one year had passed. His profits would be considered short-term capital gain, which is taxed as ordinary income.We created a hypothetical scenario to illustrate the tax consequences of Kurt's actions. It showed that Kurt would have approximately $6 million in ordinary income if he exercised all his ISOs and immediately sold the shares. This would put Kurt in the top tax bracket, and he would be responsible for nearly $3 million in federal and state taxes.
