4 ms·

Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives yo

by rcme 4y ago

Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives you tax free grants.

s1artibartfast 4y ago
That may be the case if you're employee number 10, but if the company already has a high valuation you're in trouble
- kjellsbells 4y ago
  Making sure I get your point: if I get a job at a mature company, like amazon, and they give me, say, 100k in stock options, then AIUI filing a 83b would be painful as I'd owe taxes on 100k even before they vest. But as the stock vests, isnt that treated as income and taxed anyway? And then taxed again if I sell (as capital gains)? If so then it comes down to a gamble of whether the stock is going to go up by the time the stock vests and whether you happen to have the spare cash around to pay a tax bill. Am i reading that right?
  - zamnos 4y ago
    But as a mature company, Amazon's stock price is not likely to undergo huge swings. Thus you wouldn't file an 83b. However, a startup aiming for unicorn status will have a huge inflation in valuation on the way to being a unicorn (and beyond). If you're unlucky, doing an 83b early exercise will hit right as the valuation jumps, leaving you with a five figure tax bill. I mean, that's better than, say, an eight figure tax bill, but taking a five figure risk so early on in a companies life cycle when there's not even a proven product market fit is, well, risky. If you're in a place where losing that kind of investment because of a remotely possible potential upside, your risk tolerance is simply higher than mine. The other thing to consider is your vesting timeline. As you vest, you'll owe additional taxes, which means a sizable tax bill before there's been a liquidity event. If you are rich enough to afford that then hey, go for it. But not everyone is in a position to be able to do that.
    - rcme 4y ago
      The main difference between a company like Amazon and a smaller startup is that Amazon grants RSUs whereas a smaller startup will grant options. The value of options is the (current price - strike price), which will be close to 0 at the grant date. So you can do an 83b election and owe nothing at both grant and vest time.
  - s1artibartfast 4y ago
    AIUI, If you file 83b you dont pay any taxes when the the options vest. You own the stock in clear. You still pay capital gains if you sell the stock and realize profit. You need an 83b if you think the stock will vest before you can sell it. Imagine having $10M of stock vest, no option to sell it, and no way to pay the tax on it. It is a weird artifact of the way vesting triggers taxation of unrealized gains and it fucks people all the time.
troygoode 4y ago
This is true for options but not RSUs.

by rcme 4y ago

Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives you tax free grants.

s1artibartfast 4y ago

That may be the case if you're employee number 10, but if the company already has a high valuation you're in trouble

kjellsbells 4y ago
Making sure I get your point: if I get a job at a mature company, like amazon, and they give me, say, 100k in stock options, then AIUI filing a 83b would be painful as I'd owe taxes on 100k even before they vest. But as the stock vests, isnt that treated as income and taxed anyway? And then taxed again if I sell (as capital gains)? If so then it comes down to a gamble of whether the stock is going to go up by the time the stock vests and whether you happen to have the spare cash around to pay a tax bill. Am i reading that right?
- zamnos 4y ago
  But as a mature company, Amazon's stock price is not likely to undergo huge swings. Thus you wouldn't file an 83b. However, a startup aiming for unicorn status will have a huge inflation in valuation on the way to being a unicorn (and beyond). If you're unlucky, doing an 83b early exercise will hit right as the valuation jumps, leaving you with a five figure tax bill. I mean, that's better than, say, an eight figure tax bill, but taking a five figure risk so early on in a companies life cycle when there's not even a proven product market fit is, well, risky. If you're in a place where losing that kind of investment because of a remotely possible potential upside, your risk tolerance is simply higher than mine. The other thing to consider is your vesting timeline. As you vest, you'll owe additional taxes, which means a sizable tax bill before there's been a liquidity event. If you are rich enough to afford that then hey, go for it. But not everyone is in a position to be able to do that.
  - rcme 4y ago
    The main difference between a company like Amazon and a smaller startup is that Amazon grants RSUs whereas a smaller startup will grant options. The value of options is the (current price - strike price), which will be close to 0 at the grant date. So you can do an 83b election and owe nothing at both grant and vest time.
- s1artibartfast 4y ago
  AIUI, If you file 83b you dont pay any taxes when the the options vest. You own the stock in clear. You still pay capital gains if you sell the stock and realize profit. You need an 83b if you think the stock will vest before you can sell it. Imagine having $10M of stock vest, no option to sell it, and no way to pay the tax on it. It is a weird artifact of the way vesting triggers taxation of unrealized gains and it fucks people all the time.

troygoode 4y ago

This is true for options but not RSUs.