5 ms·

The ruining you financially is mostly on tax basis, and an RSU forces you to pay tax immediately on vesting as income, whereas an option lets you wait and choos

• x0x0 11y ago
  Typically your employer would withhold a fraction of the just-vested RSUs to cover tax.
  • idunno246 11y ago
    Which means the employer needs, in cash, enough money set aside to cover the liability of ~35% of fmv(not strike) of all rsu issued. This really is unlikely to happen at an early company. What you really want, if you join at a point when you can afford to buy it, is to get options and buy and file 83b so you have zero tax owed.
• enra 11y ago
  Often when later stage companies start offering RSU there is a double trigger vesting. One is the normal vesting schedule where you earn the stock and the second is when the stock becomes liquid (acquisition, IPO). This way you wont get the tax hit until the stock is actually liquid. The downside is that you cannot get longterm capital gains tax treatment, instead it's taxed as ordinary income with your income tax bracket. Personally, I think all the tax optimizing on stock options doesn't seem worth it when most startup stock never see any returns. I wish IRS could find a way to fix this. It seems silly to pay taxes just because you own stock that is not liquid on any market and which you often can't even legally sell without company's permission.
  • idunno246 11y ago
    Whats frustrating is ISO fixes this exact situation, but AMT rules haven't really caught up with the current situation(they've barely changed since introduced iirc) - all they have to do is raise AMT to something more reasonable, or exclude ISO from AMT