Should I exercise my options? Here's the math, not an answer
Nobody can tell you whether your company will succeed. What you can know is exactly what exercising costs and what you'd get back in each scenario.
What exercising actually costs
Exercising means paying your strike price for each share you want to own. That's the obvious cost. The less obvious one is tax: for NSOs, the spread between today's 409A price and your strike is taxed as income right away. For ISOs, that same spread can trigger the alternative minimum tax. Either way, you may owe tax on paper gains you can't sell yet.
The three questions that matter
- How much cash would I need today? Strike × shares, plus the estimated tax at exercise. The calculator shows this as a single number.
- What do I lose if the company shuts down? Everything you paid to exercise and any tax you paid along the way. Most startups don't exit, so look hard at the shutdown scenario.
- What exit do I need to come out ahead? Because investors' liquidation preferences are paid first, common shareholders can get little or nothing in a small sale. The break-even figure shows the exit value where your net finally turns positive.
Exercising now vs. at exit
Exercising early and holding can turn more of your gain into lower-taxed long-term capital gains, especially with ISOs, and the tax at exercise is smaller when the 409A is still close to your strike. Waiting until an exit (exercising and selling the same day) needs no cash up front and risks nothing if the company fails, but the whole spread is usually taxed as ordinary income.
The calculator below lets you toggle between the two and change how many shares you exercise. It won't tell you what to do, but it will show you the math for each path so you can decide, ideally with a tax professional.
Educational purposes only. Not financial, tax, or legal advice.