How to Maximize Your Figma ISO Value Through Strategic Exercise and AMT Planning

Tara Shulman is a Principal Wealth Advisor at Compound. She has extensive experience guiding clients through IPOs, including Figma, Anthropic, Coinbase, and numerous other tech company liquidity events.

If you’re a Figma employee or anticipating a similar exit event, you may hold one type of equity compensation or a combination of ISOs, RSUs, and NSOs in your equity package. This Manual covers ISOs. Click here for our manuals on RSUs and here for our manual on NSOs (coming soon).

Alternative Minimum Tax implications are extremely important if you’re going through a liquidity event. 

Figma employees who are holding Incentive Stock Options (ISOs) — and employees from other companies with similar experiences — may be looking for guidance to avoid negative tax implications, exercise their timing decisions thoughtfully, and optimize their capital gains during the IPO and beyond.

If you exercise your options but don't sell the stock right away, you might owe extra taxes (AMT) on the difference between what you paid and what the stock is worth now.

If you exercise and then sell too quickly (within 1 year of exercising, OR within 2 years of when you were first granted the options), you trigger what's called a "disqualifying disposition." This means that the profit you made gets taxed as regular income, and you lose any tax advantages you would have gotten by waiting longer.

That’s why you want to create a plan that balances AMT exposure, capital gains treatment, and diversification needs.

Important note on exercising your ISOs or NSOs:

• If your stock options were granted before 2020 and you’d like to exercise them, you may need to do so before their expiration date on Feb 6, 2026. 
• If your stock options were granted in 2024 and you’d like to exercise them, you may need to do so before their expiration date on July 30, 2026.  

Key Takeaways:

ISOs create complex tax situations during IPOs, but strategic planning can maximize tax-free opportunities and minimize surprises. 

The key is understanding your AMT allowance — the amount you can exercise without triggering immediate tax liability — and building a phased approach that balances tax optimization with diversification needs. 

Rather than defaulting to "exercise early and hold," successful ISO holders calculate their AMT capacity, prioritize QSBS-eligible shares, model different scenarios using tools like Compound's Equity Simulator, and create systematic selling schedules that align with their financial goals instead of reacting to market movements.

The ISO Tax Complexity That Surprises Employees

The hidden tax liability from exercising ISOs can really catch employees by surprise. 

The IRS taxes the difference between what you paid and the stock's fair market value — essentially taxing ISOs as income, even though you haven't sold anything yet.

ISOs often have no automatic withholding, so they often lead to surprise tax bills. That means it’s your responsibility to make sure that you set aside cash appropriately. And it can be worse than pulling a little extra money out: If you don’t plan for taxes, and the stock price has declined since you exercised, you can be taxed on gains that have disappeared.

But there is an AMT allowance opportunity that lets some employees exercise without immediate tax — something you shouldn’t miss. 

You might not know that you can exercise and sell your ISOs all in a single transaction. And you don’t have to wait until you go through the IPO, either. You can exercise and sell as soon as the stock goes public, with significant tax benefits. 

Remember: For any stock options granted prior to 2020, you may need to exercise by Feb. 6, 2026, and for any granted in 2024, you may need to exercise by July 30, 2026. Otherwise, you may need to forfeit your stock options.

Strategizing for AMT Allowance Over “Exercising-and-Holding”

For ordinary income earners, AMT tax can be quite favorable. 

ISO holders should maximize AMT allowance so they can access tax-free opportunities. From there, it’s a personal choice about trade-offs between AMT exposure, capital gains optimization, and concentration risk based on your personal financial situation and risk tolerance.

That way, you’re not just using the "exercise early and hold for capital gains" strategy.

You’re creating a phased approach with more balance and better planning for outcomes you’ll feel comfortable with.

Understanding Your ISO Outcomes: From Exercising to Selling

Here’s how to build a phased ISO strategy custom-fit to your needs. ‍

Step 1: Calculate Your AMT Allowance and Exercise Capacity

During the lockup period, you should educate yourself about your AMT situation and figure out how many options you can exercise without triggering additional tax liability.

There is an amount of AMT income that you can incur without having to pay tax. Your advisor at Compound can help you calculate your AMT allowance based on your current income, filing status, and other tax factors.

For example: Recently, an Anthropic employee found they could exercise options with a $51 spread ($63 current value minus $12 exercise price) without paying AMT. 

Figma employees with similar spreads (around $65-66 current price with potentially $1 exercise prices for early employees) could benefit the same.

If you are a high-earner or have substantial capital gains, you could have a bigger AMT allowance — meaning you can exercise options worth hundreds of thousands of dollars without triggering additional tax liability. 

Keep in mind that if you're planning to sell other appreciated assets or realize large bonuses, you need to factor them into AMT calculations before figuring out what you can exercise. Additionally, Figma employees who exercised ISOs before mid-2019 could qualify for QSBS treatment, leading to up to $10 million in tax-free gains. ‍

Step 2: Plan Your Exercise Timing and Set Aside Cash for AMT

Building on your AMT analysis, you should work with your advisor to develop systematic exercise timing that optimizes tax outcomes while making sure you have enough cash on hand. When exercising ISOs, you’re responsible for keeping track of withholding. 

Exercise Timing Strategy:

Within your AMT allowance: Exercise as many ISOs as you can within your AMT-free capacity. Those are your highest-value exercises: you're capturing spread value without any immediate tax cost. 

For Figma employees, this might mean exercising a specific number of ISOs immediately after lockup release to capture value tax-free. At Compound, we use our Equity Simulator Tool to show the precise number of shares that fit within your allowance.

Beyond your AMT allowance: Think about whether the AMT cost is justified by the upside potential. You have to pay AMT on a spread, but sometimes those rates are better than ordinary income rates for W-2 employees. 

You could also think about an immediate exercise-and-sell strategy to capture spread value without exposing yourself to AMT. This would be considered a disqualifying disposition, and the spread between your strike price and sale price would be treated as ordinary income
‍

‍Step 3: Model ISO Exercise and Holding Scenarios 

When ISO holders can visualize the interplay between AMT costs, capital gains benefits, and market risk, they make very different exercise decisions compared to discussing these same trade-offs in the abstract.

The Equity Simulator Tool in Compound is really powerful for visualization to help understand potential outcomes. You can look at a side-by-side view of different scenarios, including if the stock performs well, depreciates in value, or stays the same. 

Rather than only hoping for upside, you can imagine the downside scenarios, too, and devise an action plan for anything that might happen. 

With the help of an advisor at Compound, you can model scenarios that look at:  

AMT Optimization:

• Map out exercising within AMT allowance vs. triggering AMT liability
• Compare immediate exercise-and-sell vs. exercise-and-hold strategies

Capital Gains Treatment:

• See the benefit of holding ISOs for one year post-exercise to achieve long-term capital gains treatment
• Compare tax savings from capital gains treatment vs. AMT exposure
• Show the risk/reward trade-off of holding concentrated positions for tax optimization

Market Volatility:

• Visualize how stock volatility affects the value of waiting to exercise
• Look at scenarios where stock price falls below exercise price (making ISOs worthless)
• See diversification benefits of systematic exercise-and-sell vs. concentrated holding

Step 4: Map Out Your Sell or Hold Strategy

During your selling windows, you should never make reactive “hold or sell” decisions. The next step is to create systematic selling schedules that keep tax efficiency, capital gains, and risks in mind. 

With the help of your advisor and the Equity Simulator Tool, you can analyze each individual grant or lot of shares and create a plan that outlines when you’ll sell and at what price. If you do decide to exercise and hold your ISOs, create limit orders at different price points that align with your financial goals. 

When working with your advisor to create limit orders, it’s important to keep flexibility in mind and rebalance quarterly during trading windows. For example: If you have a selling trigger for $100, you might miss an opportunity if the stock hits $99.99 and then goes back down. 

And when weighing all of your options, the question isn't, “Is this the best time or the highest price at which you'll ever sell Figma?” It’s “Is Figma the best place for your capital to be allocated?” Even if Figma stock prices haven’t peaked, if you reinvested that money elsewhere, starting now, maybe your capital would grow more at the end of the day.

Building Your ISO Exercising and Selling Strategy:

• Exercise your maximum AMT allowance capacity as soon as lockup ends
• Decide whether to pay AMT for additional exercises based on your concentration risk tolerance and belief in long-term appreciation 
• For diversification needs beyond what you're comfortable holding long-term, use exercise-and-sell transactions that capture the spread value without AMT exposure or extended market risk

IPO Outcomes That Make Sense for You

When ISO holders follow a structured approach, they'll see better tax efficiency and less concentration risk.

By planning out your AMT situation, you can maximize your tax-free exercise and make sure you keep enough cash on hand. You can also optimize your capital gains — holding your investments for over a year means you may pay lower tax rates when you sell.  You just have to find the right balance between saving on taxes and spreading your money across different investments, and make a plan.

That plan removes the guesswork and stress. When you decide in advance what will trigger you to exercise your stock options, you won't have to make tough choices based on emotions during market volatility. 

Preparing for this before the stock goes public — or even before you have the ability to sell — helps you feel mentally prepared when the time comes.

FAQs

Do I have to pay taxes when I exercise my ISOs? It depends on your AMT allowance. You can exercise a certain amount of ISOs tax-free based on your income, filing status, and other factors. Beyond that allowance, you'll owe AMT on the spread between your exercise price and the stock's fair market value.

What happens if I exercise ISOs and the stock price drops? You could owe AMT on gains that no longer exist. Since ISOs often have no automatic withholding, you're responsible for setting aside cash for taxes. This is why modeling downside scenarios and considering exercise-and-sell strategies can protect against this risk.

Should I hold my ISOs for long-term capital gains treatment? It depends on your risk tolerance and belief in the stock's appreciation. While holding for one year post-exercise qualifies you for lower long-term capital gains rates, you need to weigh tax savings against the risk of holding a concentrated position in a single company.

What is QSBS and how does it affect my ISO strategy? Qualified Small Business Stock (QSBS) can provide up to $10 million in tax-free gains. If you exercised ISOs before mid-2019 at Figma, you may qualify. Note: this tax-free amount increased to $15 million as part of the One Big Beautiful Bill, but only for shares acquired after the enactment date, July 4, 2025.

Connect with an advisor at Compound to talk through your options and optimize the value of your ISOs.