4 ms·
Not understanding stock options cost me $300K
- ggm 5y agoHad the choice for other exits. Wanted to retain the equity, so payed the bill. Most people advised me to give up some shares, or find a third-party to front the cash and split the upside — both more rational choices than the one I took.
- yuppie_scum 5y agoBut he has his equity still right? Or is he saying the company melted down in 90 days?
- sokoloff 5y agoPresumably still has the shares and the paid tax bill on them, so hardly “out $300K” any more than they’d be “out $300K” if they bought $300K of $AAPL. 83b election is good advice, though, especially for very early stage (low strike price) companies.
- buck4roo 5y agoI believe the mention of 83b election by the author is a red herring. afaik 83b only applies to recently acquired stock, not options.
- sokoloff 5y agoMany early stage companies will have early exercisable options (wherein you can exercise the options [paying the strike price] prior to the grant vesting, meaning you forfeit the shares if you leave before vesting). On those, you can do an early exercise and make an 83b election.
- michaelwilson 5y agoI've heard of a situation where people exercised their options at the stock's high point (because of the 90-day limit, or just plain ignorance), but by tax time the stock had dropped precipitously because of an accounting revenue recognition scandal. Even though they didn't sell their stock at a loss, they were forced to sell a big part of their holdings to meet their tax bill. But, worst of all, the stock rebounded the next year. --------------------------- I had other friends that exercised their stock, knowing full well they'd have to sell some at tax time to pay their taxes. What they didn't count on was getting promoted to the C-Suite and ending up LOCKED OUT of selling stock. They told me the story of this huge tax bill (which they could have comfortably paid if they could sell), and a huge penalty for paying them late. I'm not a tax person by any means but I suggested they _donate_ stock to charity. Turns out it was a good idea. With their tax accountant's guidance they were able to donate stock at the current value, realize the deduction and offset their gain. Problem solved. (Again, I'm _NOT_ an accountant. Don't try this on your own at home. Only attempt in the presence of a qualified tax accountant.)
- toomuchtodo 5y agoYou could transfer the stock to a DAF (donor advised fund). I'm familiar with Fidelity's offering for this service, but others offer it as well. The tax benefit is immediate, and you can then disburse the funds/assets to charitable causes on your own schedule. https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html https://www.fidelitycharitable.org/guidance/philanthropy/wha... (not a financial advisor/planner, not financial advice)
- Justsignedup 5y agoI feel like I read this years ago. Exactly zero companies I spoke to were willing to extend the 90 day period.
- caterama 5y agoHow does one go about finding a third party to front the cash and split the upside? And how do US federal taxes work in this situation?
- bread90 5y agoQuestion regarding this: If a company grants me 10 years to exercise after leaving and they get acquired, what is my situation? Do I get a pay out?