San Diego biotech and life science
Your Equity Is Probably Not RSU Equity
Most planning written for San Diego's equity holders assumes restricted stock units at a large public company. In biotech that assumption is usually wrong, and the difference changes three separate decisions.
San Diego has two large equity-compensated workforces, and they are not the same workforce. One holds restricted stock units in companies valued on quarterly earnings. The other holds incentive stock options in companies valued on whether a trial reads out.
Generic equity-compensation advice is written for the first group. Applied to the second it is not merely less useful, on the specific questions that matter it points the wrong way, because it assumes a tax event that has already happened and withholding that has already been taken. Neither is true of an option.
One difference, six places it shows up
The Instrument Decides Who Acts, When Tax Arrives, and Whether Cash Exists to Pay It
A restricted stock unit is something that happens to you. An option is something you do. Almost everything else follows from that.
| RSUs, the tech-sector default | ISOs, common in biotech | |
|---|---|---|
| What happens at vest | The value of the shares is ordinary income in the year they vest. It lands on the W-2 whether or not anything is sold. | Nothing. Vesting only makes the option exercisable. There is no income and no tax event until a decision is made. |
| Who acts | The employer. Vesting is a date on a schedule, and the shares arrive without the holder doing anything at all. | The holder. Exercising is an affirmative decision, taken against a deadline, and the strike price is paid out of pocket. |
| Withholding | Wage withholding applies at vest, and the IRS credits it as one-fourth paid on each of the four payment due dates. | None. No employer withholds against an ISO exercise, so any liability it creates has to be funded separately. |
| Where the tax shows up | On the regular return, as wages. | Not on the regular return at all. The spread between strike price and fair market value at exercise is an adjustment on Form 6251, a parallel calculation most holders have never run. |
| What the employer sends | A W-2 reflecting the vested value. | A Form 3921 after the exercise, carrying grant date, exercise date, exercise price and fair market value. It is the input, not the answer. |
| If the company is still private | Largely moot, restricted stock units at private companies usually carry a second, liquidity-based vesting condition. | The adjustment is driven by fair market value at exercise whether or not a market exists to sell into. A 409A valuation can create a tax bill against shares nobody can buy. |
The first consequence, with a number on it
For One Stretch of Income, a Dollar Costs 42 Cents
Not a bracket, and not a cliff. A band, and this is the year it got steeper.
An exercise does not add income to your regular return, but it adds alternative minimum taxable income. Once that crosses $500,000 the exemption starts phasing out, and for 2026 it phases at fifty cents on the dollar rather than the twenty-five cents that applied for 2025. So inside that stretch a dollar is taxed twice over: once as itself, and once as the half-dollar of exemption it destroys.
Two things about the change are worth checking against your own return, because they run opposite to the direction people assume. The phase-out rate doubled, and the thresholds fell, $500,000 for 2026 against $626,350 for 2025 on an unmarried filer. Income that sat comfortably below the range last year can be inside it this year without anything about the income changing.
Effective marginal AMT rate, unmarried filer, tax year 2026
What an Extra Dollar of AMTI Actually Costs
- 28%
- 42%The 14-point premium is here, and only here
- 28%
Unmarried filers, tax year 2026. Married filing jointly runs the same shape between $1,000,000 and $1,280,400, on a $140,200 exemption. THE 42% IS ARITHMETIC, NOT A PUBLISHED IRS FIGURE: inside the phase-out range a dollar of alternative minimum taxable income is taxed at 28%, and it also destroys fifty cents of exemption, which is taxed at 28% as well, 28% + 14% = 42%. Under the 2025 rules the phase-out ran at 25 cents and the same arithmetic gave 35%. Exemption and thresholds: Revenue Procedure 2025-32 § 3.11. Phase-out rate: IRC § 55(d)(4). The 28% breakpoint above $244,500 of taxable excess: Rev. Proc. 2025-32 § 4.10. Two limits on reading this: the 28% rate applies because these income levels sit above that breakpoint, and none of it decides whether you pay alternative minimum tax at all. That turns on the comparison against your regular tax, which is a calculation for your CPA.
The third rung is the part that gets misread. Above $680,200 the effective rate drops back to 28%, because there is no exemption left to destroy. The premium is a band you pass through, not a penalty you stay inside, which is exactly why the timing of an exercise, and how much of it lands in any one tax year, is a decision worth taking deliberately.
The full mechanics, including what the bargain element is and how it reaches Form 6251, are in the ISO post.
The second consequence
Concentration Behaves Differently When the Value Turns on a Readout
Every concentrated position carries the same basic problem: one company's fortunes decide a disproportionate share of your net worth. What differs is the shape of the thing you are concentrated in.
A mature public company's value moves on results that arrive quarterly, in increments, with guidance beforehand. A clinical-stage company's value moves on events that arrive on their own schedule, in steps rather than increments, and often while you are inside a trading window you do not control. That is not a reason to sell and it is not a reason to hold. It is a reason to take the concentration decision deliberately, and separately from the exercise decision, because running the two together is how people end up with both an unexpected tax bill and a position they never chose. That trap is worked through in the hold-or-fold post.
The Third Consequence Is Timing You Do Not Set
An exercise deadline does not move because the year turned out to be expensive, and a 409A valuation does not wait for a liquidity event. Both are dates set by someone else, and both can land in a year when there is no market to sell into and no withholding to absorb the result. That is why an exercise year is worth looking at before it closes rather than in April, and why a CPA belongs in that conversation alongside an advisor rather than after one.
Where the arithmetic is
The Numbers Are Worked Out in Full Elsewhere
This page is about which instrument you hold. These go through the calculations, with the IRS sources cited at each step.
After you reach out
What a First Conversation Covers
No document gathering beforehand, and nothing is decided in it.
Step 1: A conversation about the equity itself
What you actually hold, on what schedule, and with what deadlines attached, including grants at a previous employer that may still be running an exercise window.
Step 2: A walkthrough of where the pieces collide
Whether an exercise year, a concentrated position and a retirement plan are being decided against each other or in separate rooms. This is where a CPA belongs in the conversation, alongside rather than afterwards.
Step 3: A written summary and next steps
A plain-English summary of what is decided, what is deferred, and what has a date attached to it. No obligation attached to any of it.
Many people in this sector are H.E.N.R.Y.s
High income, and wealth concentrated in one employer or one stock. The checklist walks through the decisions worth reviewing before the year closes, including the ones with dates attached.
Request the complimentary San Diego H.E.N.R.Y. Wealth Checklist and it arrives by email.
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While you're here
Most people who download one of these have a specific situation behind it. A concentrated stock position, a tax bill that keeps growing, a decision about when they can actually step back from work. Reading about it is a start. Talking it through with someone who does this all day is faster.
If you'd find that useful, grab a time below. It's a straightforward conversation about where you are and whether we're a fit to work together. No pitch, no product.
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Questions people ask about option grants
My options vested. Do I owe anything yet?
Vesting an incentive stock option is not a taxable event. It makes the option exercisable, and nothing more. The tax question arrives with the decision to exercise, not with the vest, which is the opposite of how restricted stock units behave.
Why would exercising create tax when I have not sold anything?
For the regular tax, no income is recognised when an ISO is exercised. That rule does not apply for the alternative minimum tax: the spread between what you paid and the fair market value at exercise goes on Form 6251 as an adjustment in the year you exercise. Nothing arrives in your paycheck and no shares are sold, but a number lands on a parallel calculation. The mechanics, with the IRS sources, are in the ISO post linked from this page.
My company is private. Does any of this still apply?
Yes, and the mismatch is sharper. The adjustment is driven by fair market value at exercise, not by whether a market exists to sell into. That is why the funding question is worth working through with a CPA before an exercise rather than after it.
Is holding my employer's stock after exercise a mistake?
It is a decision, not a mistake, and it is a separate decision from the exercise. Running the two together is how people end up with both an unexpected tax bill and a concentrated position they never consciously chose. Whether the concentration is appropriate depends on the rest of your balance sheet rather than on the stock.
Do I need a CPA as well as an advisor?
For an exercise year, yes. The alternative minimum tax runs against your whole return, so what it produces depends on filing status, other income and residency. That calculation belongs with a tax professional. Coordinating it with the concentration decision, the retirement accounts and the cash needed to fund the strike price is the planning work that sits alongside it.
Is the equity strategy intentional, or inherited from a compensation plan?
A conversation can establish which. If there is an exercise window running, it is worth having before the window closes rather than after.
Book my intro callA 30-minute call. No document gathering beforehand, and no obligation afterwards.