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Or you could just exercise your options within the 90-day window. Me personally I'd much rather lose a fixed sum of money, then realize I missed out on being a

Or you could just exercise your options within the 90-day window. Me personally I'd much rather lose a fixed sum of money, then realize I missed out on being a millionaire.

nrb 10y ago
Why exactly would you prefer that over a longer exercise window? What are the odds that the startup you joined 2 years in will successfully exit (even 8 years later in the case of Dropbox)?
NhanH 10y ago
Wouldn't exercising your options be a taxable event? Without a way to liquidate them you are stuck with a big tax bill and still potentially worthless share.
chatmasta 10y ago
Then you might owe an absurd amount of money to the tax man. As far as the IRS is concerned, you need to pay the AMT on the difference between the price per share of Dropbox at exercise time, and your strike price. If you joined before Dropbox went through a couple rounds of funding, this tax bill could easily be in the hundreds of thousands, or even millions of dollars. You need to get that money from somewhere, but you can't sell on the secondary market, so what do you do?
- psadri 10y ago
  Unless you do an 83b election.
  - chatmasta 10y ago
    Can you do that for ISO?
    - joshjkim 10y ago
      yes, possible to early exercise an ISO and then elect 83(b). however, if you definitely want to early exercise, NSO is preferable since an NSO has more favorable tax treatment wrt to timing: for NSO, long-term capital gain treatment starts one year after exercise, whereas for an ISO you need to wait both one year after exercise AND two years after the option grant date. so, specifically: if you early exercise an ISO on the day it is granted, you have to wait 2 years for LTCG treatment vs. with an NSO, you only have to wait one year after you exercise, even if it's on the date of grant.
- bduerst 10y ago
  Yep, you're basically rolling the dice. It gets worse if you're at a unicorn startup that doesn't exit well, because then you may have paid thousands in taxes on stock that is essentially worth pennies: http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html?_r=0 http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-...
  - encoderer 10y ago
    Any tax paid only for exercising options is AMT. It is refundable as AMT credits in future tax years where your conventional tax liability is less than your AMT liability. It's still bad news, and an unfortunate result for the fairly well off "little guy" in this story, but it's not as bad as it was in the dotcom bust in an era before the AMT credit existed.
    - mrgordon 10y ago
      Yep this matches my experience with unicorn stock options. It was a pain to come up with the exercise price & AMT upfront in the first place but the AMT was refunded in full the next year.
- jdavis703 10y ago
  I'm aware. I've already paid taxes on options that are underwater. I just use my paycheck to purchase the options.
findjashua 10y ago
The tax liabilities on the 'paper gain' could easily go into the six figures. Not sure if many people would be able to do that, let alone want to.
jerkstate 10y ago
Giving a pile of money to the company you just decided to leave and another pile of money to the IRS gets old after a couple of times. How many lotto tickets do you buy every week?
- jdavis703 10y ago
  I believe the places I work are going to be successful, otherwise I wouldn't work there. Yes there's a lot of luck involved, but it's not just picking numbers at random.
  - ylhert 10y ago
    What about when you join a company that is promising, but then starts going downhill and you want to leave. That's the time you'll need to write the check, and it's hard to feel good gambling on a company you are leaving
cloudjacker 10y ago
Just have money bro! So obvious!
slezakattack 10y ago
If you've been there for 10 years, then the taxes on those options will murder you if you choose to exercise now. I think ideally, that you incrementally exercise over the period of time of your stay. Bigger risk since you won't be sure of the future of the company as you do now but the difference in the strike price and the value that you exercise would be smaller which would hopefully mean less tax. I think the idea is to exercise your options when the current value of the stock is not too far from the strike price granted.* * I am not a tax adviser.

Or you could just exercise your options within the 90-day window. Me personally I'd much rather lose a fixed sum of money, then realize I missed out on being a millionaire.

nrb 10y ago

Why exactly would you prefer that over a longer exercise window? What are the odds that the startup you joined 2 years in will successfully exit (even 8 years later in the case of Dropbox)?

NhanH 10y ago

Wouldn't exercising your options be a taxable event? Without a way to liquidate them you are stuck with a big tax bill and still potentially worthless share.

chatmasta 10y ago

Then you might owe an absurd amount of money to the tax man. As far as the IRS is concerned, you need to pay the AMT on the difference between the price per share of Dropbox at exercise time, and your strike price. If you joined before Dropbox went through a couple rounds of funding, this tax bill could easily be in the hundreds of thousands, or even millions of dollars. You need to get that money from somewhere, but you can't sell on the secondary market, so what do you do?

psadri 10y ago
Unless you do an 83b election.
- chatmasta 10y ago
  Can you do that for ISO?
  - joshjkim 10y ago
    yes, possible to early exercise an ISO and then elect 83(b). however, if you definitely want to early exercise, NSO is preferable since an NSO has more favorable tax treatment wrt to timing: for NSO, long-term capital gain treatment starts one year after exercise, whereas for an ISO you need to wait both one year after exercise AND two years after the option grant date. so, specifically: if you early exercise an ISO on the day it is granted, you have to wait 2 years for LTCG treatment vs. with an NSO, you only have to wait one year after you exercise, even if it's on the date of grant.
bduerst 10y ago
Yep, you're basically rolling the dice. It gets worse if you're at a unicorn startup that doesn't exit well, because then you may have paid thousands in taxes on stock that is essentially worth pennies: http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html?_r=0 http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-...
- encoderer 10y ago
  Any tax paid only for exercising options is AMT. It is refundable as AMT credits in future tax years where your conventional tax liability is less than your AMT liability. It's still bad news, and an unfortunate result for the fairly well off "little guy" in this story, but it's not as bad as it was in the dotcom bust in an era before the AMT credit existed.
  - mrgordon 10y ago
    Yep this matches my experience with unicorn stock options. It was a pain to come up with the exercise price & AMT upfront in the first place but the AMT was refunded in full the next year.
jdavis703 10y ago
I'm aware. I've already paid taxes on options that are underwater. I just use my paycheck to purchase the options.

findjashua 10y ago

The tax liabilities on the 'paper gain' could easily go into the six figures. Not sure if many people would be able to do that, let alone want to.

jerkstate 10y ago

Giving a pile of money to the company you just decided to leave and another pile of money to the IRS gets old after a couple of times. How many lotto tickets do you buy every week?

jdavis703 10y ago
I believe the places I work are going to be successful, otherwise I wouldn't work there. Yes there's a lot of luck involved, but it's not just picking numbers at random.
- ylhert 10y ago
  What about when you join a company that is promising, but then starts going downhill and you want to leave. That's the time you'll need to write the check, and it's hard to feel good gambling on a company you are leaving

cloudjacker 10y ago

Just have money bro! So obvious!

slezakattack 10y ago

If you've been there for 10 years, then the taxes on those options will murder you if you choose to exercise now. I think ideally, that you incrementally exercise over the period of time of your stay. Bigger risk since you won't be sure of the future of the company as you do now but the difference in the strike price and the value that you exercise would be smaller which would hopefully mean less tax. I think the idea is to exercise your options when the current value of the stock is not too far from the strike price granted.* * I am not a tax adviser.