This is absolutely correct. I made the mistake of exercising right at our IPO and selling within the year. Ended up paying nearly 45% (combined federal, state, local) in taxes on the full value. A colleague who exercised a year earlier paid ordinary income on the smaller pre-IPO spread, then only 15% on the huge jump from exercise to IPO price. Difference was over $100k in taxes on roughly similar option grants.

That's a really important point about the 409(a) potentially increasing! I hadn't considered that but it makes total sense as we get closer to IPO. I like the idea of a partial exercise strategy. Regarding cashless exercise - I've heard rumors that we'll have that option at IPO, but nothing confirmed in writing. I should probably ask our finance team about this. Would that essentially mean I could exercise and immediately sell enough shares to cover the exercise cost and taxes?

Exactly - a cashless exercise at IPO would let you exercise options and immediately sell enough shares to cover both the exercise cost and the resulting tax bill, without needing to come up with cash out of pocket. Very common for IPOs. If that's an option, you might want to hold some options for that route, especially if you're cash-constrained. The tax hit will be higher, but you won't need liquidity. Many people do a mixed approach - exercise some now for tax advantages (if you have the cash), and save some for cashless exercise at IPO to diversify risk. Definitely get confirmation from your finance team though - some companies require you to exercise before IPO to participate in the offering!

Do you know if TaxSlayer handles crypto transactions well? I did some trading last year and heard that can be a nightmare to report correctly.

TaxSlayer does handle crypto transactions, but I found it to be somewhat limited for more complex crypto situations. It works well if you have straightforward trades from major exchanges that provide good documentation. If you have extensive crypto activity across multiple platforms or DeFi transactions, you might want to use specialized crypto tax software first (like CoinTracker or Koinly) to generate the necessary forms, then import those into TaxSlayer. That's what I did this year after struggling with manual entry last year, and it was much easier.

This is super helpful! Is there any way to know if I qualify for free file without going through the whole process first? I'm right on the edge income-wise.

That's really helpful, thank you! My situation was exactly that - I had a side business that generated decent income in 2020-2021, but I closed it down last year. Would I just call HMRC after filing my 2021-2022 return to ask to be removed from self assessment?

Yes, that's right! Complete your 2021-2022 return first (which will show your income is below thresholds), then call HMRC and explain that you've closed your business and no longer need to be in the self assessment system. They'll ask a few questions to confirm you don't meet any of the criteria, and if they agree, they'll remove you from the system. Make sure you keep the confirmation they send you about this. Most people find it's a huge relief not having to worry about the annual self assessment deadline anymore!

Yeah this happened to me too. The interest rates aren't massive but it's still annoying. Better to be slightly conservative with your estimate if you're not 100% sure.

Wouldn't a HELOC be even better if they own a home? The rates are usually much lower than personal loans.

Yes, a HELOC would definitely be better if you own a home with sufficient equity. The rates are typically much lower than personal loans, often in the 4-6% range currently. Plus the interest might be tax-deductible if you use it for home improvements (though not for paying taxes). I suggested a personal loan because many traders who get caught in this situation are younger and might not own property yet. But you're absolutely right that a HELOC is a better option if available.

Form 9465 is exactly what I used when I owed $15k a few years back. Super straightforward. Just know that if you owe over $10k they'll probably file a tax lien which can affect your credit.

My custodian did break it down - there were about $78 in earnings on the excess amount. Does that change how I should handle the forms? So confused about why I'm still paying penalties even after doing what I thought was the right thing.

That explains it! When you recharacterize, both the contribution and earnings get moved. But for the 6% penalty calculation, you're still considered to have made an excess contribution until you properly "use up" that contribution amount. You need to either: 1) reduce your 2024 Roth contribution by the $390 excess amount, or 2) remove the $390 from your retirement accounts entirely. The earnings situation is properly handled through the recharacterization, but the "slot" of contribution is what's creating the ongoing penalty. Form 5329 has a specific line where you can claim a "credit" for addressing the prior year's excess. Make sure to complete that for 2024 once you've taken one of these steps, and you'll stop the penalty cycle.

In my experience, NO tax software handles Roth recharacterizations correctly, especially when they span multiple tax years. I had to manually override several fields in TurboTax last year. The biggest issue is that the tax software interview questions don't properly distinguish between recharacterization vs conversion, and they don't track your basis correctly across tax years. I'd strongly recommend either getting professional help or at minimum running your completed forms by a tool that specializes in these situations before filing.

Thank you! That's really helpful. I think I'll have to do some manual overrides then. I was worried I was doing something wrong but it sounds like the software itself just doesn't handle these complex situations well.