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>...and cannot be sold in part to cover the bill. Wait, so I can't exercise in July, get the money, and then pay the tax bill in February of the next year?
by x86_64Ubuntu 6y ago
>...and cannot be sold in part to cover the bill.
Wait, so I can't exercise in July, get the money, and then pay the tax bill in February of the next year?
- mywittyname 6y agoYou can do that. But, if the company is still private, what you can't do is sell some of those shares that you just exercised in order to cover the tax bill. That's fine if you exercise at $1.20, since that $100,000 exercise only increases you taxable income by $20k. But when you fully exercise at $20, your taxable income for the year increases by $1.9MM. Most people in that situation can't afford to cover the taxes, so they walk away.
- ska 6y agoSure, but where did the money come from to pay the tax bill? Pre IPO you may find it difficult or impossible to sell any of the stock you now own, so you'll be out of pocket from somewhere else. This gets less and less practical for most people as the difference between strike price and value increases.