{"version":"1.0.0","segments":[{"startTime":6.77,"endTime":8.75,"body":"hello, this is chase Berkey here."},{"startTime":8.75,"endTime":11.69,"body":"Again, for another episode"},{"startTime":8.75,"endTime":11.69,"body":"of taxes made simple."},{"startTime":11.96,"endTime":15.5,"body":"I'm the CEO and co-founder around"},{"startTime":11.96,"endTime":15.5,"body":"these parts and I'm not going to lie."},{"startTime":15.56,"endTime":16.79,"body":"I'm kind of a big deal."},{"startTime":16.97,"endTime":18.05,"body":"So you're welcome."},{"startTime":18.705,"endTime":18.945,"body":"Kidding."},{"startTime":18.945,"endTime":22.005,"body":"Of course, Natalie Cohen runs"},{"startTime":18.945,"endTime":22.005,"body":"the show around here, or at least"},{"startTime":22.005,"endTime":23.085,"body":"she's running the show today."},{"startTime":23.475,"endTime":26.985,"body":"Today's episode builds on the previous"},{"startTime":23.475,"endTime":26.985,"body":"speed round of stock compensation."},{"startTime":27.465,"endTime":31.485,"body":"We're going to dive deeper into ISO's"},{"startTime":27.465,"endTime":31.485,"body":"and NSS, which you probably knew since"},{"startTime":31.485,"endTime":36.105,"body":"you selected this episode, the format is"},{"startTime":31.485,"endTime":36.105,"body":"going to be the same rapid fire Q and a"},{"startTime":36.135,"endTime":40.395,"body":"in five minutes or less, our producer,"},{"startTime":36.135,"endTime":40.395,"body":"however politely informed us that we"},{"startTime":40.395,"endTime":42.285,"body":"went over time on our last episode."},{"startTime":42.585,"endTime":45.615,"body":"So this time I promise you, we"},{"startTime":42.585,"endTime":45.615,"body":"will stay under five minutes."},{"startTime":46.125,"endTime":48.525,"body":"Okay, let's get it out, Natalie."},{"startTime":48.555,"endTime":51.375,"body":"Thanks again for volunteering to"},{"startTime":48.555,"endTime":51.375,"body":"drop some knowledge on our listeners"},{"startTime":51.464,"endTime":52.875,"body":"from your office in Portland, Oregon."},{"startTime":53.944,"endTime":54.455,"body":"Thanks, chase."},{"startTime":54.455,"endTime":56.944,"body":"Happy to be here again, going"},{"startTime":54.455,"endTime":56.944,"body":"to do my best to keep it"},{"startTime":56.944,"endTime":58.055,"body":"under five minutes this time."},{"startTime":58.775,"endTime":60.635,"body":"Uh, what kind of coffee"},{"startTime":58.775,"endTime":60.635,"body":"are you drinking today?"},{"startTime":61.294,"endTime":63.004,"body":"I've got some strong coffee with me today."},{"startTime":63.815,"endTime":64.894,"body":"Well, that's the best kind."},{"startTime":64.925,"endTime":67.414,"body":"I prefer my coffee to look"},{"startTime":64.925,"endTime":67.414,"body":"like Turkish crude oil."},{"startTime":67.655,"endTime":67.925,"body":"All right."},{"startTime":67.925,"endTime":72.695,"body":"So as a reminder, ISO is shorthand"},{"startTime":67.925,"endTime":72.695,"body":"for incentive stock option and NSO is"},{"startTime":72.695,"endTime":74.525,"body":"short for non-qualified stock option."},{"startTime":74.91,"endTime":76.86,"body":"Natalie to recap our last episode."},{"startTime":77.07,"endTime":79.35,"body":"What is an I, sorry, what is an NSL?"},{"startTime":80.24,"endTime":84.47,"body":"An NSL is an option to buy a certain"},{"startTime":80.24,"endTime":84.47,"body":"number of shares at a certain price."},{"startTime":84.53,"endTime":87.259,"body":"When you exercise the option, you have"},{"startTime":84.53,"endTime":87.259,"body":"to pay tax on the difference between"},{"startTime":87.259,"endTime":90.289,"body":"the price you paid for the stock and its"},{"startTime":87.259,"endTime":90.289,"body":"actual value at the time you bought it."},{"startTime":91.13,"endTime":91.61,"body":"Awesome."},{"startTime":91.61,"endTime":93.17,"body":"And what is an ISO?"},{"startTime":93.53,"endTime":97.009,"body":"So an ISO is like an NSO,"},{"startTime":93.53,"endTime":97.009,"body":"except there's no tax due."},{"startTime":97.009,"endTime":100.16,"body":"When you exercise the option in"},{"startTime":97.009,"endTime":100.16,"body":"certain circumstances, you might"},{"startTime":100.16,"endTime":101.42,"body":"know alternative minimum tax."},{"startTime":101.42,"endTime":102.71,"body":"When you exercise an ISO."},{"startTime":103.215,"endTime":106.695,"body":"Therefore, I suppose, are generally taxed"},{"startTime":103.215,"endTime":106.695,"body":"once the actual shares have been sold,"},{"startTime":107.585,"endTime":112.775,"body":"but how would an ISO recipient know if"},{"startTime":107.585,"endTime":112.775,"body":"AMT was owed when they exercise the stock?"},{"startTime":113.315,"endTime":114.965,"body":"Honestly, they probably wouldn't."},{"startTime":115.115,"endTime":118.835,"body":"The calculation is complex and requires"},{"startTime":115.115,"endTime":118.835,"body":"substantial knowledge of the tax code."},{"startTime":119.045,"endTime":122.795,"body":"Generally, if their income is about"},{"startTime":119.045,"endTime":122.795,"body":"200,000 prior to the exercise, they"},{"startTime":122.805,"endTime":126.215,"body":"would be wise to reach out to CPA,"},{"startTime":122.805,"endTime":126.215,"body":"to perform this calculation and"},{"startTime":126.215,"endTime":128.705,"body":"determine the amount of estimated"},{"startTime":126.215,"endTime":128.705,"body":"taxes that need to be paid in."},{"startTime":129.495,"endTime":130.845,"body":"But there's a positive side here."},{"startTime":130.845,"endTime":131.235,"body":"Right?"},{"startTime":131.385,"endTime":135.615,"body":"How does getting hit with AMT potentially"},{"startTime":131.385,"endTime":135.615,"body":"benefit you in future tax years?"},{"startTime":135.905,"endTime":139.295,"body":"So if you do have to pay AMT,"},{"startTime":135.905,"endTime":139.295,"body":"you'll create a tax credit for"},{"startTime":139.295,"endTime":143.315,"body":"future years that you can use"},{"startTime":139.295,"endTime":143.315,"body":"when your regular tax exceeds AMT."},{"startTime":144.005,"endTime":144.485,"body":"Gotcha."},{"startTime":144.515,"endTime":149.765,"body":"So who exactly can receive an ISO"},{"startTime":144.515,"endTime":149.765,"body":"only employees of the company?"},{"startTime":149.885,"endTime":153.365,"body":"Whereas Anissa is, can be granted to just"},{"startTime":149.885,"endTime":153.365,"body":"about anyone involved with the company."},{"startTime":154.2,"endTime":157.47,"body":"And from the standpoint of an"},{"startTime":154.2,"endTime":157.47,"body":"employer, which is more advantageous"},{"startTime":157.5,"endTime":162.89,"body":"ISO's or NSS, generally speaking in"},{"startTime":157.5,"endTime":162.89,"body":"Osos are more advantageous because"},{"startTime":162.89,"endTime":164.48,"body":"they have less restrictive stock."},{"startTime":167.029,"endTime":170.45,"body":"Generally speaking MSLs are more"},{"startTime":167.029,"endTime":170.45,"body":"advantageous because they have less"},{"startTime":170.45,"endTime":172.489,"body":"restrictive requirements than ISOs."},{"startTime":172.64,"endTime":176.209,"body":"And when an employee exercises,"},{"startTime":172.64,"endTime":176.209,"body":"the option, the employee gets to"},{"startTime":176.209,"endTime":179.269,"body":"deduct the amount of ordinary income"},{"startTime":176.209,"endTime":179.269,"body":"that the employee has to pick up."},{"startTime":180.0,"endTime":183.33,"body":"As a reminder that income to the"},{"startTime":180.0,"endTime":183.33,"body":"employee is the difference between"},{"startTime":183.33,"endTime":186.54,"body":"the exercise price and the fair"},{"startTime":183.33,"endTime":186.54,"body":"market value at the time of exercise."},{"startTime":187.22,"endTime":191.39,"body":"So other than the requirement that"},{"startTime":187.22,"endTime":191.39,"body":"ISO's only be issued to employees,"},{"startTime":191.57,"endTime":193.64,"body":"what other restrictions do ISO's have?"},{"startTime":194.54,"endTime":198.02,"body":"They must be nontransferable no"},{"startTime":194.54,"endTime":198.02,"body":"more than a hundred thousand of"},{"startTime":198.02,"endTime":199.76,"body":"stock can be exercised each year."},{"startTime":200.0,"endTime":204.44,"body":"And if an ISO recipient owns greater"},{"startTime":200.0,"endTime":204.44,"body":"than 10% of the company, the exercise"},{"startTime":204.47,"endTime":207.68,"body":"price must have at least a 10%"},{"startTime":204.47,"endTime":207.68,"body":"premium over fair market value."},{"startTime":208.77,"endTime":212.19,"body":"And I would imagine that sophisticated"},{"startTime":208.77,"endTime":212.19,"body":"listeners of the podcast would likely"},{"startTime":212.19,"endTime":217.53,"body":"have heard of a four Oh nine a valuation,"},{"startTime":212.19,"endTime":217.53,"body":"what is a four Oh nine evaluation and"},{"startTime":217.53,"endTime":218.579,"body":"windows and employer have to do it."},{"startTime":219.74,"endTime":219.98,"body":"Yeah."},{"startTime":219.99,"endTime":222.65,"body":"So this is actually an area where"},{"startTime":219.99,"endTime":222.65,"body":"it's easier for the company to have"},{"startTime":222.65,"endTime":225.02,"body":"an ISO plan instead of an NSO plan."},{"startTime":225.05,"endTime":229.04,"body":"Since it's only required for"},{"startTime":225.05,"endTime":229.04,"body":"innocence, a four 90 evaluation is"},{"startTime":229.04,"endTime":231.98,"body":"essentially evaluation done by an"},{"startTime":229.04,"endTime":231.98,"body":"appraiser to determine fair market"},{"startTime":231.98,"endTime":233.42,"body":"value of the company and its shares."},{"startTime":233.804,"endTime":236.984,"body":"It's not cheap and it may not yield"},{"startTime":233.804,"endTime":236.984,"body":"the results of the company or employee"},{"startTime":236.984,"endTime":241.995,"body":"was hoping for employers must perform"},{"startTime":236.984,"endTime":241.995,"body":"this valuation at least once a year or"},{"startTime":241.995,"endTime":245.084,"body":"whenever a material event occurs that"},{"startTime":241.995,"endTime":245.084,"body":"would affect the value of the company."},{"startTime":245.745,"endTime":249.375,"body":"On the other hand, ISOs only need"},{"startTime":245.745,"endTime":249.375,"body":"to have a good faith valuation"},{"startTime":249.375,"endTime":250.905,"body":"determined by the board of directors."},{"startTime":251.855,"endTime":255.695,"body":"So switching gears back to the"},{"startTime":251.855,"endTime":255.695,"body":"employee side, what does an ISO"},{"startTime":255.695,"endTime":258.995,"body":"recipient need to do to ensure"},{"startTime":255.695,"endTime":258.995,"body":"the most favorable tax treatment?"},{"startTime":260.145,"endTime":264.975,"body":"Can you to ensure that they hold the"},{"startTime":260.145,"endTime":264.975,"body":"stock after exercise for at least a year."},{"startTime":265.275,"endTime":269.355,"body":"This means one year and a day at a"},{"startTime":265.275,"endTime":269.355,"body":"minimum, they also need to make sure"},{"startTime":269.355,"endTime":273.585,"body":"that they don't sell the stock before two"},{"startTime":269.355,"endTime":273.585,"body":"years after the date of grant of the ISO."},{"startTime":274.125,"endTime":278.025,"body":"Again, this means two years and the"},{"startTime":274.125,"endTime":278.025,"body":"day after grant date at a minimum."},{"startTime":278.645,"endTime":280.085,"body":"And what about NSS?"},{"startTime":280.115,"endTime":281.135,"body":"What can people do there?"},{"startTime":282.21,"endTime":286.11,"body":"The best thing they can do is to exercise"},{"startTime":282.21,"endTime":286.11,"body":"the stock as soon as possible to start"},{"startTime":286.11,"endTime":289.44,"body":"the holding period of the stock and"},{"startTime":286.11,"endTime":289.44,"body":"reduce the amount taxed as ordinary"},{"startTime":289.44,"endTime":291.72,"body":"income versus long-term capital gains."},{"startTime":292.08,"endTime":295.8,"body":"If the NSO is unvested when"},{"startTime":292.08,"endTime":295.8,"body":"you exercise, then you need to"},{"startTime":295.8,"endTime":297.96,"body":"consider making an 83 B election."},{"startTime":298.38,"endTime":302.34,"body":"Otherwise the ordinary tax burden"},{"startTime":298.38,"endTime":302.34,"body":"will occur when the stock invests,"},{"startTime":302.55,"endTime":303.9,"body":"which will be later down the road."},{"startTime":303.93,"endTime":305.85,"body":"When the stock may be"},{"startTime":303.93,"endTime":305.85,"body":"worth substantially more."},{"startTime":306.854,"endTime":308.534,"body":"And could you remind our listeners again?"},{"startTime":308.534,"endTime":311.354,"body":"What exactly an 83 B election is?"},{"startTime":311.645,"endTime":312.034,"body":"Yeah."},{"startTime":312.034,"endTime":315.695,"body":"So an 83, B election is an election"},{"startTime":312.034,"endTime":315.695,"body":"made by someone who has unvested"},{"startTime":315.695,"endTime":318.844,"body":"options or shares that is electing"},{"startTime":315.695,"endTime":318.844,"body":"to be taxed on the value of equity."},{"startTime":318.844,"endTime":323.015,"body":"Now, before at best, they make"},{"startTime":318.844,"endTime":323.015,"body":"the election with their employer"},{"startTime":323.104,"endTime":326.974,"body":"and IRS, and it must be done"},{"startTime":323.104,"endTime":326.974,"body":"within 30 days of the grant date."},{"startTime":327.215,"endTime":328.685,"body":"I'll say that again for good measure."},{"startTime":328.865,"endTime":333.034,"body":"An 83 B election must be done"},{"startTime":328.865,"endTime":333.034,"body":"within 30 days of the grand bait."},{"startTime":333.735,"endTime":335.115,"body":"Well there, you have it folks."},{"startTime":335.145,"endTime":337.185,"body":"I think we're actually"},{"startTime":335.145,"endTime":337.185,"body":"under the five minute Mark."},{"startTime":337.185,"endTime":337.785,"body":"This time."},{"startTime":338.145,"endTime":342.195,"body":"Join us for our next speed round"},{"startTime":338.145,"endTime":342.195,"body":"where we'll dive deeper into NSOC and"},{"startTime":350.625,"endTime":354.885,"body":"And now for the disclaimer, the content"},{"startTime":350.625,"endTime":354.885,"body":"in the proceeding podcast should not in"},{"startTime":354.885,"endTime":356.955,"body":"any way be construed to be tax advice."},{"startTime":357.345,"endTime":359.085,"body":"All tax laws are nuanced in."},{"startTime":359.085,"endTime":361.725,"body":"Those are applied to each"},{"startTime":359.085,"endTime":361.725,"body":"unique situation differently."},{"startTime":362.115,"endTime":366.015,"body":"Don't be a dummy IRS CPA,"},{"startTime":362.115,"endTime":366.015,"body":"preferably a darker CPA."}]}