5 ms·

you'll still take home a large payout even after taxes have been deducted, i would not worry about that, would be more worried about when/if the company either

you'll still take home a large payout even after taxes have been deducted, i would not worry about that, would be more worried about when/if the company either goes public or gets acquired.

carbocation 11y ago
> you'll still take home a large payout even after taxes have been deducted, i would not worry about that, would be more worried about when/if the company either goes public or gets acquired. But they will be on the hook for an AMT bill in April which will likely be worth 3-10 years worth of their current annual salary. The tax question is by far the most important question for this individual. The question of losing the $X0,000 that they put into the options directly is a rounding error.
- quotha 11y ago
  How could the tax bill be greater than the amount earned?
  - vessenes 11y ago
    It's not, it's just that the 'earnings' are highly illiquid.
  - landryraccoon 11y ago
    It is very possible to lose more money than you earned. The OP may have to pay taxes against the valuation of the company, even if he isn't allowed to sell the shares. Then if the company drops in value, he could easily lose money on the difference.
  - fasteddie 11y ago
    OP isn't gaining any money from this. They are excercising their options: spending $X0,0000 to buy $X,000,000 worth of shares. After exercising, they now own shares. The difference between the purchase price and the value of the shares is income, and OP needs to pay taxes on that income. Note that OP isn't getting money, they are getting the shares, which they can hopefully sell in the future, either in an IPO or acquisition (or future internal round). If they want to sell the shares to get money (to pay the taxes), there are tricky rules involved.
- brobinson 11y ago
  Does AMT apply if you exercise and hold immediately after joining a startup (i.e., no money has been raised since joining/strike price has not changed)? From reading various articles online, it seems like it only applies to the difference in value between the strike price at grant time and strike price at exercise.
  - ropiku 11y ago
    No, it does not. It's the difference in value when you exercise. However you expose yourself to a big risk if you exercise immediately after joining, depending on how much the options cost you.
    - brobinson 11y ago
      Thank you for the explanation.

you'll still take home a large payout even after taxes have been deducted, i would not worry about that, would be more worried about when/if the company either goes public or gets acquired.

carbocation 11y ago

> you'll still take home a large payout even after taxes have been deducted, i would not worry about that, would be more worried about when/if the company either goes public or gets acquired. But they will be on the hook for an AMT bill in April which will likely be worth 3-10 years worth of their current annual salary. The tax question is by far the most important question for this individual. The question of losing the $X0,000 that they put into the options directly is a rounding error.

quotha 11y ago
How could the tax bill be greater than the amount earned?
- vessenes 11y ago
  It's not, it's just that the 'earnings' are highly illiquid.
- landryraccoon 11y ago
  It is very possible to lose more money than you earned. The OP may have to pay taxes against the valuation of the company, even if he isn't allowed to sell the shares. Then if the company drops in value, he could easily lose money on the difference.
- fasteddie 11y ago
  OP isn't gaining any money from this. They are excercising their options: spending $X0,0000 to buy $X,000,000 worth of shares. After exercising, they now own shares. The difference between the purchase price and the value of the shares is income, and OP needs to pay taxes on that income. Note that OP isn't getting money, they are getting the shares, which they can hopefully sell in the future, either in an IPO or acquisition (or future internal round). If they want to sell the shares to get money (to pay the taxes), there are tricky rules involved.
brobinson 11y ago
Does AMT apply if you exercise and hold immediately after joining a startup (i.e., no money has been raised since joining/strike price has not changed)? From reading various articles online, it seems like it only applies to the difference in value between the strike price at grant time and strike price at exercise.
- ropiku 11y ago
  No, it does not. It's the difference in value when you exercise. However you expose yourself to a big risk if you exercise immediately after joining, depending on how much the options cost you.
  - brobinson 11y ago
    Thank you for the explanation.