Equity and Taxes: 6 Questions to Answer Before April 15

This isn't a comprehensive tax guide. It's a checklist of the six questions that trip up tech workers every year. Answer them before you file.

1. Did you exercise stock options in 2025?

If yes: you may owe taxes even if you haven't sold any shares.

ISOs (Incentive Stock Options): Exercising ISOs doesn't create ordinary income. But the spread between strike price and FMV at exercise is an AMT preference item. If you exercised a lot of ISOs in 2025, you may owe Alternative Minimum Tax — regardless of whether the stock is worth anything today.

NSOs (Non-qualified Stock Options): The spread at exercise is ordinary income. If you exercised NSOs in 2025, your employer should have included this on your W-2. If they didn't, or if you exercised at a company that doesn't do payroll withholding, you may owe taxes that weren't withheld.

What to do: Pull your 2025 exercise history. Check Form 3921 (for ISO exercises) — your employer is required to send this. If you exercised NSOs, check your W-2 box 12 codes.

2. Did RSUs vest in 2025?

RSU income is ordinary income and it's usually handled automatically — your employer withholds taxes at vest, and it shows up on your W-2. Most people are fine here.

The problem: supplemental withholding rate is 22% federally, but RSU income might push you into a higher bracket. If your total income (salary + RSU vest) is over ~$200K, you likely owe more than what was withheld.

What to do: Add up your total 2025 income including vested RSU value. If you're close to or over a bracket threshold, check your withholding.

3. Did you file an 83(b) election in 2025?

If you received restricted stock (not options — actual shares subject to vesting) and didn't file an 83(b) election within 30 days, you've been paying taxes on each tranche as it vests. That might be fine. But if you did file an 83(b) election, you should have a copy on file — the IRS doesn't confirm receipt.

What to do: If you filed an 83(b) in 2025, check that you have a copy with proof of mailing. This matters if the IRS ever questions it.

4. Did you sell any equity in 2025?

Sales trigger capital gains tax. The rate depends on how long you held the shares:

• Short-term (held less than 1 year): ordinary income rates (up to 37%)
• Long-term (held more than 1 year): 0%, 15%, or 20% depending on your income

For ISOs specifically: selling within 2 years of the grant date or 1 year of exercise date is a disqualifying disposition — turns the gain into ordinary income.

What to do: Check your 1099-B from your broker. Review holding periods on any ISO sales.

5. Did your 1099-B report a $0 cost basis on RSU sales?

This one catches people every year. When you sell vested RSUs, your brokerage sends a 1099-B. Many brokerages report the cost basis as $0 — because they don't have visibility into the ordinary income your employer already reported on your W-2.

If you report the sale using a $0 cost basis, you'll pay tax on the full sale price as a capital gain — even though you already paid income tax on the value at vesting. That's double taxation, and it's your responsibility (not your broker's) to correct it.

What to do: When reporting RSU sales on Form 8949, use the FMV on your vesting date as your cost basis — not what the 1099-B says. This is the value reported on your W-2. If you're using tax software, look for an option to adjust the reported cost basis. If you're using a CPA, make sure they know you have RSUs.

6. Do you know your company's 409A valuation?

If you're thinking about exercising options in 2025 or planning to exercise in 2026, the 409A valuation (the independently determined fair market value of common stock) determines your tax cost basis. Companies update these annually (or after funding rounds).

This isn't a 2025 tax issue directly, but if you're planning to exercise before April 15 thinking you'll get a lower FMV — make sure the current 409A hasn't been updated since your last check.

What to do: Ask HR for the current 409A. If a funding round closed in the last 6 months, it's likely been updated.

Bonus: 2026 ISO planning just got harder

If you're planning to exercise ISOs in 2026, there's a tax law change worth knowing before you file.

The "One Big Beautiful Bill Act" (signed July 2025) changed the AMT phase-out thresholds starting in 2026:

• 2025: Phase-out starts at $626,350 (single filer), phase-out rate 25%
• 2026: Phase-out starts at $500,000 (single filer), phase-out rate 50%

The threshold drops and the rate doubles. For people in the $500K–$700K+ income range (salary + ISO bargain element), this means significantly more AMT exposure on 2026 exercises than in prior years.

If you're in California or New York, this is compounded — SALT deductions are still disallowed under AMT.

If you're planning ISO exercises in 2026: Model your AMT before you exercise. Don't rely on what your exposure looked like in prior years — the math changed.

The deeper problem

Most of this complexity exists because startups don't explain equity compensation clearly, and most financial advisors don't specialize in it.

If you want to understand your full equity picture — not just the tax piece, but the valuation, the dilution math, the waterfall, and what your stake is actually worth — that's what Equity Decoder covers.

This is not tax advice. Talk to a CPA or tax attorney for your specific situation — especially if you exercised large amounts of ISOs or have complex equity arrangements.