Should I exercise my startup stock options now or wait? How does QSBS qualification affect this decision?
Stock option exercise timing depends on multiple factors:
- QSBS qualification: Exercising ISOs early can start the 5-year QSBS holding period for potential $10M+ tax-free gains
- AMT considerations: ISO exercises may trigger Alternative Minimum Tax
- Liquidity needs: Exercising requires cash for taxes and exercise price
- Company prospects: Higher risk companies may warrant earlier exercise
For QSBS qualification, you need:
- Stock acquired at original issuance
- $50M+ asset test at issuance
- 3-5-year holding period
- Active business requirements
Range's analysis considers all these factors plus your complete financial picture to recommend optimal timing.
Source: Range Blog - ISOs vs NSOs, What is the QSBS tax exemption and do any of my investments qualify?