[nugget]

CA state income tax goes up to 13.3% (for >$1 million), it's 12.3% on taxable income of $526,444 up to the $1m threshold. There's also the ACA medicare tax of 3.8% on investment income (which applies to employee options) which kicks in if AGI is >$250k for Married Filing Jointly, >$125k for a single person. You can itemize and deduct state taxes paid (for now - some proposals to weaken or eliminate this), which cuts the effective CA state rate by your top marginal Federal rate (.396+.038=.434). Net net an employee making $1m from employee options (above and beyond a healthy base salary) resident in CA will pay about 50% in taxes between Fed and State. The #s in NY and NJ are a couple % less. I would support the ability for an employee to ''smooth out'' the tax liability of option value accrued over working many years, say for example by recognizing the income over 3-5 years (thus taking advantage of lower tax brackets), but I've never heard this seriously discussed by legislators.

[encoderer]

Great summary, one caveat: You often won't see full deductibility of your state income tax because between state income tax, property tax, mortgage interest and/or childcare, you find yourself subject to the AMT.

I would also like the ability to do something similar to the way a business can depreciate an asset over time. How about the opposite: IRS tells us how many years you can spread an _appreciation_ out over. Currently the tax code penalizes the guy who works below market for years and then sees a lump sum payday. Why should it?

That said, I'd be happy if we just did away with dual-basis of ISOs and eliminate the rube goldberg AMT credits.

[nugget]

Good point. AMT has caused no end of heartburn around Silicon Valley and everybody should be familiar with it.

One of the two major Presidential candidates (who shall remain nameless) has proposed capping itemized deductions at 28%. I think this idea is more or less a bipartisan compromise acknowledging the political impossibility of eliminating specific deduction categories (e.g. mortgage interest, health care expenses, property taxes, state income taxes), each of which has a very loud and vocal special interest lobby. If passed this would be an effective tax hike felt very acutely by option holders of acquired companies resident in high state income tax States (in other words, entrepreneurs in Silicon Valley and New York).