$500K-$2M Equity: Critical AMT Planning and Diversification Strategy

When your equity exceeds $500,000, poor planning can cost $50,000+ in unnecessary taxes. Master multi-year exercise timing to avoid AMT, develop a diversification strategy that manages capital gains, and explore whether donating appreciated shares to charity makes sense.

AMT planning becomes critical for ISOs. Exercising $500K or more in ISOs in a single year will almost certainly trigger the Alternative Minimum Tax. The AMT preference item is the spread between exercise price and fair market value at exercise. Your CPA needs to model the optimal number of shares to exercise each year, balancing AMT exposure against the risk of share price changes.

Diversification strategy is needed. Holding $500K-$2M in a single company stock is significant concentration risk. A CPA can help structure a diversification plan that staggers sales to minimize capital gains impact, potentially pairing sales with tax-loss harvesting in other positions.

Charitable giving of appreciated shares. If you are charitably inclined, donating long-term appreciated shares directly to a charity or donor-advised fund avoids capital gains tax entirely while providing a fair-market-value deduction. At this equity level, this strategy can save tens of thousands in taxes compared to selling shares and donating cash.

The tradeoff: The planning required is multi-year and requires coordination between exercise timing, diversification, and charitable strategy. A CPA who only handles your annual return is not enough -- you need proactive advisory throughout the year.