3 ms·

Not sure how "She owed a big chunk of money in taxes thanks to that stock". One has to do really risky/dumb things with stock options to get into that scenario

• encoderer 9y ago
  All you have to do is execute them and hold. You owe taxes. Look up dual basis.
  • muzz 9y ago
    Like I said, risky/dumb things
    • encoderer 9y ago
      To realize the benefit of ISOs you need long term gains treatment. That requires you "prepay" tax when you execute. It's the difference between 20% and 33%+ effective tax rate.
      • muzz 9y ago
        Just to be clear, sounds like you are referring to the company that was acquired (not Google, whose stock is liquid). Few startups have Early Exercise of stock options. For those that do, if one has the cash to do the exercise and the willingness to put the cash into that illiquid startup stock, it behooves them to do it as soon as they can, so that there is no difference between their Strike Price and the Fair Market Value, so the tax owed is $0 when they file their 83(b) election. If Early Exercise is not available, one could exercise the options as they vest, but that is entails both the risk of both owing taxes (since FMV would be higher than strike price by that time) in addition to putting cash into illiquid startup stock-- all for a potential benefit of slightly lower tax rate (33%+ vs 20%) when the hope of both appreciation and liquidity is realized. That's the risky/dumb thing I was referring to. Alternatively, they could simply hold the option, which costs them nothing, and just pay the normal taxes (33%+) when exercising and selling.
        • encoderer 9y ago
          "Alternatively, they could simply hold the option, which costs them nothing, and just pay the normal taxes (33%+) when exercising and selling." This forfeits the tax advantages of an ISO. You don't need early exercise, you exercise when they vest, hold them for a year, and sell at long term treatment.
      • deleted 9y ago
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• deleted 9y ago
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