Guide

If you work at a startup and hold stock options, at some point you have to decide whether to pay to turn them into shares, and when. Get it wrong and you can owe tens of thousands of dollars in tax on shares you cannot sell, or pay far more tax than you needed to when the company is eventually sold. The rules are complicated enough that most people guess, or pay a tax adviser thousands of dollars for a spreadsheet.

Equity Optimizer does that work in your browser:

• Know the tax before you exercise. The calculator shows the alternative minimum tax an ISO exercise would trigger this year, and the total cash you would need, with every figure explained.
• Find your free room. It finds your no-AMT limit, the most ISOs you can exercise this year for nothing more than the strike price.
• Plan across years. The planner compares five ways of timing your exercises over several years, within the cash you can spare, and counts every tax effect: AMT now, the credit that comes back later, and lower long-term rates when you sell.
• See the risk, not just one guess. It simulates thousands of possible futures for the company to show how often each strategy loses money and how bad the bad cases are, not only the average.

It is an educational tool, not tax advice. It covers US federal tax only. Check your plan with a tax professional before acting on it.

The calculator answers one question: if I exercise this many ISOs this year, what will it cost me? It is for a single tax year and ISOs only.

1. Choose the tax year and your filing status, and enter this year's wages (for a married couple filing jointly, both salaries).
2. Enter how many ISOs have vested and not been exercised, their strike price, and the latest 409A value per share. Your equity portal has all three.
3. Enter or slide the number of shares to exercise. Results update as you type.

The planner answers the bigger question: over the next few years, when should I exercise, given what might happen to the company? It handles several grants, ISOs and NSOs together, and years of tax including AMT credits.

409A value (fair market value)

The value per share of a private company's common stock, set by an independent valuation the company commissions, usually once a year. It is named after the section of the tax code that requires it. The IRS treats it as the shares' fair market value on the day you exercise.

Why it matters: The higher the 409A value is above your strike price, the bigger the spread, and the more tax an exercise can trigger.

Example: If the latest 409A says $16 a share, that is the value used for tax when you exercise.

Alternative minimum tax (AMT)

A second, parallel way of calculating federal tax with fewer deductions and two flat rates, 26% and 28%. Every year you owe the higher of your regular tax and this tentative minimum tax. The difference, when there is one, is your AMT.

Why it matters: The ISO spread is added to AMT income but not to regular income. A large enough ISO exercise pushes your tentative minimum tax above your regular tax, and you owe AMT in cash, on shares you may not be able to sell.

Example: Single, $200,000 wages, exercising 4,000 ISOs with a $60,000 spread in 2026: regular tax $36,734, tentative minimum tax $44,174, so AMT owed is $7,440.

AMT credit

AMT caused by an ISO exercise is not lost for good. It becomes a credit you can use to reduce your regular tax in later years, but only in years when your regular tax is higher than your tentative minimum tax. Most of it typically comes back the year you sell the shares.

Why it matters: AMT on ISOs is often a timing cost rather than a permanent one, unless the company fails and you never have a year in which to use the credit.

AMT exemption

An amount of AMT income that is not taxed under the AMT: $90,100 for a single filer and $140,200 for a married couple in 2026. It shrinks by 50 cents for every dollar of AMT income above $500,000 (single) or $1,000,000 (joint), and disappears entirely at high incomes.

Capital gains, long and short term

The profit when you sell shares for more than your cost. If you held the shares for more than a year it is a long-term gain, taxed at 0%, 15% or 20% depending on your income. A year or less, it is a short-term gain, taxed like wages.

Cash budget

The most cash you are willing or able to spend on exercising, strike price plus extra tax, in any one year. Strategies that would need more are marked over budget and are never chosen as best.

Cash out and peak cash out

Cash out in a year is the strike price you pay plus the extra tax the exercise causes, minus any AMT credit that comes back. Peak cash out is the most you will have put in, in total, at any point before the exit pays you back.

Why it matters: Peak cash out is the money you need to have available, and the most you could lose if the company fails.

Cashless exercise at exit

At an exit you can exercise remaining options and sell the shares at the same moment, using the sale proceeds to pay the strike price. You never put cash in, but the whole spread is taxed as ordinary income because the shares were not held at all.

Chance of a loss

The share of simulated futures in which the strategy ends with less money than it started with, in today's dollars. For strategies that exercise before the exit this is usually close to the chance the company fails.

Disqualifying disposition

Selling ISO shares before both holding periods are met. The spread at exercise is then taxed as wages, like an NSO, and only any further gain is a capital gain. If you sell in the same calendar year you exercised, the AMT adjustment for those shares disappears too.

Equity tax

The extra tax your stock options cause in a year: your total tax with the exercises and sales, minus what you would have paid on your salary alone. It can be negative in years when AMT credit comes back and lowers your tax.

Exercising

Paying the strike price to turn options into actual shares. After exercising you own the shares, and their value can go up or down.

Why it matters: Exercising costs cash and can trigger tax in the same year, even though at a private company you usually cannot sell the shares yet.

Exit

The event that lets you sell your shares: the company is acquired or goes public. Until then, private company shares usually cannot be sold. A failure, where the shares end up worth nothing, is also treated as an exit at a price of zero.

Why it matters: The exit price and timing decide whether exercising early paid off, and both are uncertain. That uncertainty is what the planner's simulation is about.

Expected value

The average result you would get if you could live through every possible future many times, weighting each by how likely you said it is. It is not what will happen: in any one future you might do much better or much worse.

Why it matters: It is the fairest single number for comparing strategies, but always look at the chance of a loss alongside it.

Filing status

Whether you file your federal return as a single person or jointly with a spouse. It changes the tax brackets, the standard deduction, and the AMT exemption.

ISO (incentive stock option)

A type of employee stock option with special tax treatment. Exercising ISOs and holding the shares adds no regular income tax, and if you hold long enough the whole gain is taxed at the lower long-term capital gains rates.

Why it matters: The catch is the alternative minimum tax: the spread on ISOs you exercise and keep is added to your AMT income, which can create a tax bill in the year you exercise.

Median and percentiles

Line up all the simulated results from worst to best. The median (50th percentile) is the one in the middle. The 10th percentile is the result that only the worst 10% of futures fall below; the 90th percentile is the result that only the best 10% beat.

Example: A 10th percentile of −$17,000 means one future in ten loses at least $17,000 in today's dollars.

Monte Carlo simulation

A way to explore uncertainty by drawing thousands of random futures from your assumptions and calculating the result in each one. Here each future picks whether the company fails, exits modestly or exits big, in which year, and at what price.

Why it matters: One guess at the exit hides the risk. The spread of results across thousands of futures shows how good, bad and likely each outcome is.

Net investment income tax (NIIT)

An extra 3.8% federal tax on investment income, including capital gains, for people with income above $200,000 (single) or $250,000 (married filing jointly).

No-AMT limit (the crossover)

The largest number of ISOs you can exercise in a year without owing any AMT, given your income. Up to this point your regular tax stays higher than your tentative minimum tax, so the spread costs nothing extra.

Why it matters: Exercising up to the limit each year starts the long-term holding clock on those shares without a tax bill beyond the strike price.

Example: Single, $200,000 wages, $15 spread per share in 2026: up to 2,092 shares can be exercised with no AMT.

NSO (non-qualified stock option)

The ordinary kind of stock option. The spread at exercise is taxed as wages in that year. Any gain after exercise is a capital gain when you sell.

Why it matters: NSOs have no AMT surprise, but exercising early means paying ordinary income tax on a gain you cannot yet sell.

Price uncertainty (volatility)

How widely the exit price can land around the price you entered. The simulation treats your price as the middle outcome. At 50%, about two futures in three land between 0.61 and 1.65 times that price, and the rest further out.

Published and projected tax tables

The IRS publishes each year's tax brackets, deductions and AMT figures shortly before the year starts. The app has the official 2025 and 2026 figures. Later years are projections: the 2026 figures grown by 2.5% a year.

Qualifying disposition

Selling ISO shares more than two years after the grant date and more than one year after you exercised them. The whole gain over the strike price is then a long-term capital gain.

Why it matters: This is the reward for exercising ISOs early: the gain is taxed at 0%, 15% or 20% instead of up to 37%.

Regret matrix

A grid of possible exits, price down the side and year across the top. Each cell names the strategy that would have done best if that exit happened, and by how much it beats the next best.

Why it matters: It shows which strategy you would regret least in each kind of future, and where the answer flips.

Regular income tax

The federal income tax most people think of: your income minus the standard deduction, taxed in brackets from 10% to 37%.

Seed

The starting number for the simulation's random draws. The same seed and inputs always give exactly the same futures and results, so a run can be repeated or shared. A different seed gives a different but equally valid set of futures.

Why it matters: If changing the seed changes your conclusion, the strategies are too close to call, or you need more simulated futures.

Spread (bargain element)

The difference between what the shares are worth when you exercise and what you pay for them: (409A value minus strike price) times the number of shares. It is a paper gain.

Why it matters: For NSOs the spread is taxed as salary straight away. For ISOs it is not regular income, but it counts toward the alternative minimum tax.

Example: 4,000 shares exercised at $1 when they are worth $16: spread = 4,000 × $15 = $60,000.

Standard deduction

A fixed amount subtracted from your income before regular tax is calculated: $16,100 for a single filer and $32,200 for a married couple filing jointly in 2026. The app assumes you take it rather than itemizing.

Stock option

The right, but not the obligation, to buy a set number of your company's shares at a fixed price, the strike price. Startups grant options instead of shares because they cost nothing to receive.

Why it matters: An option is only worth something if the shares become worth more than the strike price and you can eventually sell them.

Example: 10,000 options at a $1 strike let you buy 10,000 shares for $10,000 in total.

Strike price

The fixed price per share you pay to turn an option into a share. It is set when the option is granted, usually at that day's 409A value, and never changes.

Example: With a $1 strike, exercising 4,000 options costs $4,000 whatever the shares are worth.

Tentative minimum tax

The tax worked out under the AMT rules: AMT income minus the exemption, taxed at 26% up to $244,500 and 28% above (2026 figures), with long-term capital gains still at their lower rates. If it is higher than your regular tax, you pay the difference as AMT.

Today's dollars and the discount rate

Money received in the future is worth less than money today, because today's money could be invested meanwhile. The discount rate converts future amounts into today's dollars so that cash spent now and cash received years later can be compared fairly.

Example: At a 4% discount rate, $104 received next year is worth $100 today.

Vesting and the cliff

Options are earned over time. A common schedule is four years (48 months) with a one-year cliff: nothing vests for the first 12 months, then a quarter vests at once, then the rest vests in equal monthly slices.

Why it matters: You can only exercise options that have vested. If you leave the company, unvested options are usually forfeited.

Example: 10,000 options on a 12-month cliff and 48-month schedule: 0 vested at 11 months, 2,500 at 12 months, about 208 more each month after that.

Worst 10% average

The average result across the worst tenth of the simulated futures. It answers the question: if things go badly, how badly on average?

• US federal tax only. State tax, including California's own AMT, is not included yet.
• Single and married-filing-jointly only, with the standard deduction and no other income besides wages.
• 2025 and 2026 use the IRS's published figures; later years are 2026 figures grown 2.5% a year.
• Payroll taxes on NSO income are not included.
• In the planner, exercises happen on December 15 and exits on June 30. Options not vested at the exit are lost, and a failed company pays nothing.
• The 409A value grows at a fixed rate, and wages follow your raise rate exactly.
• The plan ends two years after the latest exit; AMT credit still unused then is not counted.
• Early exercise with an 83(b) election, the $100,000 annual ISO limit, and public-company shares are not modelled yet.

Every calculation runs in your browser. Nothing you enter is sent to a server. The calculator keeps your inputs only in the page address, after the #, a part that browsers never send to a server; the planner keeps them, and any scenarios you save, in this browser's local storage, where only you can see them. Clearing your browser data removes them.

To learn whether the site is useful, it counts page views and visits with Cloudflare Web Analytics. That uses no cookies, does not identify you, and never sees the numbers you type.