After seven years at Wealthfront, I'm facing what should be an exciting moment: a potential IPO. But instead of pure excitement, I found myself overwhelmed with questions about NSOs, RSUs, AMT credits, and tax implications that could cost me tens of thousands of dollars if I get them wrong.

So I did what any Range employee would do – I sat down with Josh Morris, CFP®, CPA/PFS, Lead Financial Planner @ Range, for a reality check. What followed was a conversation that completely changed how I'm thinking about my equity compensation. 

Here's what I learned, and what you need to know if you're in a similar situation.

Understanding Your Equity Compensation Options: The Basics

Before diving into my conversation with Josh, let's clarify the key types of equity compensation that come into play during an IPO:

Non-Qualified Stock Options (NSOs): Stock options that don't qualify for special tax treatment. When you exercise NSOs, the difference between the exercise price and current market value is taxed as ordinary income.

Incentive Stock Options (ISOs): Tax-advantaged stock options that can qualify for capital gains treatment if you meet specific holding requirements (at least one year from exercise and two years from grant date).

Restricted Stock Units (RSUs): Company shares granted to employees that vest over time. RSUs are taxed as ordinary income when they vest, based on the stock's market value.

Qualified Small Business Stock (QSBS): A federal tax benefit allowing you to exclude up to 100% of capital gains (up to $10 million or 10x your investment) if you hold qualifying small business stock for at least five years.

Questions to Ask About Your Equity Before an IPO

When I scheduled time with Josh, I thought I had a simple question: When should I exercise my remaining options when my former employer goes public?

But Josh immediately started asking questions that revealed how much I didn't know:

"Were any of the shares QSBS eligible when you exercised?"

I had to admit I wasn't sure. Josh was asking about Qualified Small Business Stock (QSBS) – a potentially massive tax benefit where you can exclude up to 100% of capital gains from federal taxes if you hold stock in a qualifying small business for at least five years. The catch? The company must be a C corporation, engaged in an activity not excluded under Sec. 1202(e)(3) of the IRS tax code, and with less than $50 million in assets when you acquire the stock.

It turns out that my shares were not QSBS eligible, but with thousands of potential savings on the line, this was well worth looking into.

"Did you file any 83(b) elections or do early exercises?"

Nope. Like many employees at startups, I was too nervous about the company's future to exercise early. An 83(b) election allows you to pay taxes on the value of your stock at the grant date (often near zero at early stages) rather than when it vests, potentially saving massive amounts in taxes. In essence, an 83(b) election lets you pre-pay your potential tax liability while the company is at a low valuation, with the hope that the equity value increases in the future. Because you’ve paid taxes while the valuation was low, you might be able to avoid those future higher taxes. Now I understand the tax implications of that decision.

Why AMT Strategy Matters Beyond Exercising ISOs

Here's where the conversation got interesting. I mentioned that 2024 was the first year I ever paid AMT (Alternative Minimum Tax) – it happened when I left Wealthfront and had to exercise my ISOs (incentive stock options) before they expired. When you leave a company, you typically have 90 days to exercise your vested ISOs or they’ll convert into NSOs or potentially expire.

Josh's response surprised me: "Consider exercising more this year to make sure that we can get back the AMT credit sooner."

Wait, what? My instinct was to minimize ordinary income, but Josh explained that AMT creates a credit you can apply to your ordinary income tax in future years. To recapture my AMT credit from last year as soon as possible, I actually need my regular tax to exceed my AMT tax. Since AMT tops out at 28% I would need to ensure my regular tax rate is higher to benefit from that credit.

This completely flipped my tax strategy for the year.

The Home Purchase Question: Timing Life Goals with Equity Events

I was transparent with Josh about our next financial goal: We're planning to buy a home in Westchester, NY, which means we need a substantial down payment plus New York's transfer taxes. The Wealthfront equity represents a significant portion of what we'd need to make this life goal a reality.

Josh's framework for thinking about this was invaluable:

"It comes down to what you're going to use the proceeds for. Are you planning to take chips off the table and diversify, or are you really wanting to hold out for potential stock appreciation?"

For my wife and I, the answer was clear: liquidity for our home purchase takes priority over holding and hoping for future appreciation. Real estate in Westchester represents a tangible asset and lifestyle improvement for our family, while holding options involves speculation and market risk. This clarity immediately simplified our strategy.

How Do State Taxes Affect Stock Option Exercises After Moving?

Here's something that caught me off guard: California wants its cut on any options exercised, even if I exercise the shares as a resident of New York.

Josh explained: "All the equity grants vested while you were based in California will be subject to California taxes even if you sell them when you're a resident of New York."

The good news? New York gives you a tax credit for taxes paid to other states to minimize double taxation on the same income. The not-so-good news? California's rates are higher (up to 13.3% vs New York's 10.9%¹), so I won't get a full offset.

The NSO Strategy That Actually Makes Sense

Before talking to Josh, I didn't fully understand the flexibility of NSOs. Since I'd already exercised my ISOs when leaving Wealthfront, my remaining equity decisions centered on NSOs and RSUs (restricted stock units).

Josh helped me see the strategic advantages:

For NSOs: These can be exercised and sold immediately (cashless exercise), making them ideal for generating the cash we need for our home down payment. As Josh explained: "The benefit of NSOs is you can exercise and sell through a cashless exercise, which typically covers the taxes associated with it.”

Plus, exercising them this year could help generate the ordinary income I need to recapture my AMT credit ASAP. It's a win-win: liquidity for our home purchase and tax credit optimization.

For RSUs: These vest automatically and are taxed as ordinary income when they vest – there's no decision to make here. As I told Josh, they’ll create a significant tax event regardless.

The ISOs I Already Exercised: Understanding the One-Year Hold

I still own the ISOs I exercised in 2024 when leaving Wealthfront, and had questions around whether holding them for longer to unlock tax benefits would be the right move for us. To get favorable long-term capital gains treatment (20% federal rate vs up to 37% for ordinary income¹) on the entire gain (from original exercise price to final sale price), I’d need to hold these shares for at least one year from exercise and two years from the grant date.

Josh's insight: "If you want to hold onto any of your equity, the ISOs may be best for this because you can get capital gains treatment as opposed to ordinary income."

But this assumes the stock appreciates and we have no immediate liquidity needs. For our situation, having a concrete plan (home purchase) outweighs the potential tax savings from uncertain future appreciation.

What an Experienced CFP Brings to the Table

The most valuable part of working with Josh wasn't just the specific advice – it was seeing how a skilled CFP thinks through these problems. He didn't just answer my questions; he:

1. Identified opportunities I hadn't considered (AMT credit recapture through strategic ordinary income generation)
2. Explained complex concepts clearly (QSBS eligibility, state tax implications, AMT mechanics)
3. Connected different parts of my financial picture (equity exercise timing, home purchase goals, tax optimization)
4. Provided a framework for decision-making rather than prescriptive advice

This isn't something you can figure out with a basic online calculator.

My Next Steps (And a Possible Framework for Yours)

After this conversation, my path forward is clearer:

1. Calculate exactly how much ordinary income I need to generate this year to maximize my AMT credit recapture in 2025
2. Plan to exercise and sell enough NSOs to cover our home down payment needs
3. Evaluate the timing for selling my already-exercised ISOs based on the one-year holding requirement and our home purchase timeline
4. Accept that perfect optimization is impossible – sometimes you need to prioritize concrete life goals over theoretical tax minimization

If you're facing similar decisions, here's my advice: Don't try to figure this out alone. Range can help. The interaction between AMT, state taxes, different equity types, and your life goals is too complex for back-of-the-napkin math.

Skimping on working with a pro like Josh and missing out on strategic financial moves can be expensive. Working with someone who understands both the technical details and the human side of these decisions? That's worth far more than it costs.

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If you're navigating complex equity compensation decisions, whether it's an IPO, acquisition, or job change, consider booking time with Range for a demo. The conversation that changes your strategy might be just 30 minutes away.

¹The information provided is current as of July 07, 2025 for tax year 2025. The information provided is not meant to be relied on as tax specific advice. Please consult https://www.irs.gov/ for up to date information.