$100K-$500K Equity: Exercise Timing, AMT Spreading, and Concentration Risk

In the $100K-$500K range, exercise timing becomes valuable—poor timing can cost $10K-$30K in unnecessary taxes. Learn the ISO $100K annual vesting limit, how to spread exercises across years to avoid AMT, and when diversification starts making financial sense.

The ISO $100K annual vesting limit matters here. Under Section 422(d), ISOs that first become exercisable in a single year are only treated as ISOs up to $100K in value (measured at grant date). Any excess is automatically reclassified as non-qualified stock options taxed as ordinary income at exercise. Your CPA should review your vesting schedule to identify years where you might exceed this threshold.

Exercise timing can manage AMT. The spread on ISO exercises is an AMT preference item. At this equity level, exercising all at once could push you into AMT, but spreading exercises across two or three tax years often avoids it entirely. This requires modeling your projected income and AMT position each year.

Diversification is smart but not urgent. Holding $100K-$500K in a single company is meaningful concentration risk, but the tax cost of selling may not justify aggressive diversification strategies yet. A measured approach works.

The tradeoff: You have enough equity that poor timing on exercises can cost $10,000-$30,000 in unnecessary taxes, but the planning required to avoid this is a few hours of CPA modeling, not a multi-year engagement.