Maximize Your Stock Options & Minimize Taxes | Dan Pascone | Tailored Wealth

Answer Box: TL;DR

The big question with stock options isn’t how much you make—it’s how much you keep after taxes. In this short video, Dan explains the basics of incentive stock options (ISOs) vs. non-qualified stock options (NSOs), how the AMT trap can blindside you if you exercise too many options too fast, why timing exercises in a lower-income year can significantly cut your tax bill, and how understanding short-term vs. long-term capital gains can mean the difference between a 37% tax rate and roughly 20%. With the right strategy, stock options can be a powerful wealth-building tool instead of a tax-time disaster.

Key Takeaways

Don’t just focus on the headline value—focus on the after-tax outcome.
- It’s common to focus on how much your options “could be worth,” but what matters is what you actually keep after federal, state, and (if applicable) AMT taxes.
- A great paper gain can turn into disappointment if you exercise or sell at the wrong time.
Know what kind of options you have: ISOs vs. NSOs.
- Incentive Stock Options (ISOs): Potentially favorable tax treatment if you meet holding requirements and avoid triggering too much AMT.
- Non-Qualified Stock Options (NSOs): Typically taxed as ordinary income on the spread (fair market value minus strike price) at the moment you exercise.
- You can’t build a smart strategy until you’re clear on which type you hold and how each is taxed.
Watch out for the AMT trap with ISOs.
- ISOs can trigger Alternative Minimum Tax (AMT) if you exercise a large number in a single year.
- You might owe a big tax bill before you’ve even sold the shares or realized the cash.
- This is why pacing exercises and modeling AMT risk is critical.
Timing is everything—especially your income year.
- Exercising in a high-income year stacks option income on top of your regular compensation, pushing you into higher brackets and/or AMT.
- Where possible, consider exercising more in lower-income years (e.g., sabbatical, career break, transition year) to reduce marginal tax rates.
Short-term vs. long-term capital gains can change the tax bill dramatically.
- If you sell too soon, your gain may be taxed at short-term rates—which can be as high as roughly 37% for high earners.
- If you hold long enough to qualify for long-term capital gains (generally at least 1 year from exercise/holding period and 2 years from grant for ISOs), the rate is typically closer to 20% for many high earners.
- The difference in timing can mean six- or seven-figure swings for large option packages.
Stock options are powerful—but only if managed intentionally.
- Options can be one of the best ways to build meaningful wealth from your career.
- Without a plan, though, you risk triggering unnecessary taxes, concentration risk, or missing key deadlines.
- A disciplined, multi-year strategy usually beats reacting to stock price spikes or headlines.
A smart strategy today can save serious money over time.
- Coordinating exercise timing, income levels, AMT exposure, and holding periods can save you six or seven figures over the life of a large option grant.
- For most executives, this is worth real planning—not a quick, last-minute decision.
Get help if you’re unsure.
- Option planning sits at the intersection of tax, cash-flow planning, risk management, and investment strategy.
- If you’re unsure how to proceed, working with a team familiar with executive compensation (and stock-option tax rules) can prevent expensive mistakes.

Key Moments

(00:00–00:16) – The real question: what do you keep? Dan opens by reframing the core issue: people focus on what they’ll make with stock options, but the critical question is how much they’ll keep after taxes.
(00:16–00:36) – Dan’s background & goal. He introduces himself as founder and CEO of Tailored Wealth and notes that he has helped many executives navigate stock options to build real wealth and avoid major tax mistakes.
(00:36–00:55) – Know your option type. Dan explains the difference between incentive stock options (ISOs) and non-qualified stock options (NSOs), and how they’re treated for tax purposes.
(00:55–01:16) – The AMT trap and timing risk. He highlights the Alternative Minimum Tax (AMT) risk when exercising too many ISOs too quickly, and stresses that exercising in high-income years is usually a bad move if you can avoid it.
(01:16–end) – Short-term vs. long-term gains & the payoff of a smart strategy. Dan breaks down how selling too soon can lead to taxes as high as ~37%, while holding long enough can drop that to around 20%, and closes by emphasizing that a smart, intentional options strategy today can save six or seven figures over the long run.

Episode Summary

In this focused video, Dan tackles one of the most misunderstood areas of executive compensation: stock options. He starts by challenging the common tendency to obsess over the potential value of options grants while ignoring the tax frictions that determine how much you actually keep. A great-looking grant on paper can be undermined if you exercise at the wrong time, trigger AMT, or sell without considering capital-gains rules.

He quickly lays out the key distinction between incentive stock options (ISOs) and non-qualified stock options (NSOs). ISOs can offer favorable tax treatment when certain holding periods are met, but they come with the hidden risk of the Alternative Minimum Tax (AMT), especially when a large number are exercised in a single year. NSOs, by contrast, are generally taxed as ordinary income on the spread at exercise, making the timing of exercise—and your overall income level in that year—critically important.

Dan emphasizes that timing is one of the most powerful levers you have. Exercising options in a year when your income is already high stacks more income on top of an already large tax bill. Exercising more in a lower-income year can reduce your marginal rate and, in some cases, AMT exposure. He also underscores the importance of understanding short-term vs. long-term capital gains: sell too soon and you may pay top marginal rates near 37% on gains, hold long enough and you may qualify for long-term capital gains around 20% instead.

He closes by reiterating that stock options can be one of the best wealth-building tools available to executives—but only when managed thoughtfully. A well-structured strategy that considers option type, AMT, income timing, and holding periods can translate into six- or seven-figure tax savings over time. For those who feel overwhelmed, he encourages seeking guidance and points viewers to Tailored Wealth’s resources for more help.

Full Transcript

Dan: Most people focus on how much money they will make with stock options, but the real question is how much money you will actually keep. Make the wrong move and you could lose a fortune due to taxes. Play it right and you could maximize your gains and keep a lot more in your pocket.

Dan: I’m Dan Pasone, and I’m the founder and CEO of Tailored Wealth, and I’ve helped countless executives to navigate stock options the right way so they can build real wealth and avoid massive tax mistakes. Here’s how to protect yourself and make the most of your stock options.

Dan: First off, know your options. Incentive stock options, also known as ISOs, can pay you big if you hold them for long enough. Non-qualified stock options, or NSOs, get taxed as income the moment that you exercise them.

Dan: And you want to make sure that you avoid the AMT trap, which stands for Alternative Minimum Tax. Essentially, if you exercise too many options too fast, you may owe taxes before you even sell your shares.

Dan: And make sure that you time it right. Exercising in a high income year is typically a bad move. If possible, wait for a lower income year because that means lower taxes.

Dan: Lastly, understand the difference between short-term and long-term gains. If you sell too quickly you could owe as much as 37% in taxes, but if you hold for a year, long-term capital gains is only about 20%.

Dan: Stock options are one of the best wealth-building tools available, but only if you manage them wisely. A smart strategy today could save you six or seven figures in the long run.

Dan: Need help making the right moves? Like, subscribe, and check out our website in the links below to learn more.

Resources & Concepts Mentioned

Incentive Stock Options (ISOs): Employee stock options with potential preferential tax treatment if holding-period rules and other requirements are met.
Non-Qualified Stock Options (NSOs): More common options taxed as ordinary income on the spread at exercise.
Alternative Minimum Tax (AMT): A parallel tax system that can be triggered by large ISO exercises and other items, potentially creating tax owed before shares are sold.
Short-term vs. long-term capital gains: Short-term gains are typically taxed at ordinary income rates; long-term gains (after meeting holding periods) are taxed at generally lower preferential rates.
Exercise timing: Choosing when to exercise based on income levels, market conditions, and AMT exposure.

FAQs

What’s the difference between ISOs and NSOs for taxes?

ISOs can qualify for long-term capital gains treatment on the spread if you meet specific holding requirements, but they may trigger AMT when exercised. NSOs are generally taxed as ordinary income on the spread at the time of exercise, with future appreciation taxed as capital gains when sold.

What is the AMT trap Dan mentions?

The AMT trap occurs when you exercise a large block of ISOs, creating a big “spread” that counts as income for AMT purposes—even if you haven’t sold the shares or received the cash. That can result in a large tax bill that arrives before any liquidity event.

When is a good time to exercise my options?

There’s no one-size-fits-all answer, but generally it’s smart to consider exercising more in lower-income years and to model how exercises will affect your AMT exposure and cash needs. The right timing also depends on your confidence in the company, diversification needs, and personal financial plan.

Why does holding for more than a year matter?

Holding long enough to qualify for long-term capital gains can reduce your tax rate on gains—often from high ordinary income rates (up to ~37% for top earners) down to about 20% (plus any applicable surcharges). That gap can be huge for large option positions.

Should I get professional help with stock option decisions?

In most cases, yes—especially if the dollar amounts are meaningful. Option strategy touches tax planning, investment risk, cash flow, and estate planning. A team that understands executive compensation can help you avoid costly mistakes and build a multi-year game plan.

Disclaimer

This video and written summary are for educational and informational purposes only and do not constitute financial, tax, or legal advice. They do not create a client relationship with Tailored Wealth or any related entity.

Stock options, AMT planning, and capital gains strategies involve significant risks, including the potential for loss of capital and unexpected tax liabilities. Before taking any action on stock options, you should consult with:

A licensed financial advisor or planner
A qualified tax professional (CPA or EA)
Legal counsel, where appropriate

Any examples mentioned are illustrative only and not guarantees of outcomes. Actual results will vary based on your individual situation and changing tax laws.

Next Steps

Inventory your grants: List all stock options, including whether they’re ISOs or NSOs, grant dates, strike prices, and expiration dates.
Model taxes: Work with a pro to model how different exercise scenarios affect regular tax, AMT, and cash needs.
Plan your timing: Look ahead at your expected income over the next few years and map exercises to lower-income windows when possible.
Clarify holding periods: Understand what it takes to qualify for long-term capital gains and how that aligns with your risk tolerance and liquidity needs.
Build a written game plan: Create a multi-year option strategy that integrates with your broader financial, retirement, and diversification goals.

Handled thoughtfully, your stock options can be a cornerstone of your long-term wealth—not just a tax surprise waiting to happen.