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Comment by mehrdadn | Hacker News Reader

Any thoughts on the AMT trap, and the potential inability to exercise (or go bankrupt with AMT) when you leave? It's not exactly written in red warning letters on offer packages, right?

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Solution is to get rid of the 90 day limit for ex-employees, which is also just the right thing to do in general.

Doesn't totally solve AMT, as there are other reasons to want to exercise other than "because your options are about to expire", but it does fix the worst common issue.

AMT has changed a lot since Trump adjusted the tax rules. I suspect it isn't relevant any more.

> The number of households owing AMT rose from 200,000 in 1982 to 5.2 million in 2017, but was reduced back to 200,000 in 2018 https://en.wikipedia.org/wiki/Alternative_minimum_tax

Less relevant on the margins, but for the people who get hosed the worst (ie. owe the IRS millions when you never seen cash anywhere near that) the trap is very much still there.

If you have ISOs with a low strike price with a private company that is approaching IPO—especially considering the insanity in the stock market right now—you better take a long hard look at the numbers before exercising (or leaving your company and being forced to exercise)

If you’re hitting ATM you’re doing extremely well for yourself and are privileged.

You seem to be unfamiliar with the AMT trap? I would recommend Googling it. It impacts people who are not well-off prior to exercising their options by triggering AMT upon exercise.

Right, but why exercise the option without next selling it? If you’re quitting, that’s a risk. And AMT is applied on the gains. So your strike is $1, valuation currently at $100 and you pay tax on the $99 gain. Unless it’s Theranos that valuation wont go back to $1, so yes, you’re privileged.

You need to read up on the issue. Links to get you started:

- https://www.holloway.com/g/equity-compensation/sections/the-...

- https://thestartuplawblog.com/immediately-exercisable-isos-t...

In private companies, you often are unable to sell your shares because it requires board approval. The AMT trap, in oversimplified terms, is being wealthy enough on paper, due to shares, to trigger AMT but unable to sell shares to cover the taxes.

Because you literally can’t sell it. This is why we people get stuck at startups. You must immediately exercise upon leaving but cannot sell, incurring huge tax bills but zero cash in your wallet.

If you are rich you can afford it. If you aren’t, you are forced to take zero.

This entire subthread is about "people who are doing well" getting shafted.

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