If you receive a nice grant of stock from your company, it will probably be few years before you want to sell that stock for cash. In fact, it will likely be s

If you receive a nice grant of stock from your company, it will probably be few years before you want to sell that stock for cash. In fact, it will likely be several years before there is a reasonable way to sell the stock even if you wanted to. Selling stock in a privately-held, early-stage startup is often not a simple matter. Despite that, the US IRS will want you to pay taxes on the current value of that stock in cash this year. The IRS doesn't care that you don't have the cash. And, they don't care that there's a very large chance the stock will turn worthless before you can sell it for cash. Options however are not taxed until they are exercised. In practice, exercised options are usually converted directly to cash. That makes paying the taxes much easier. And, if the company folds you get nothing, but at least you didn't pay taxes up front on a stock that turned worthless. So, it's a bit complicated, but options are usually more friendly to employees than direct grants in general. Details in the options like "What happens to my options if I leave the company?" are important. They can also be complicated and possibly employee unfriendly. I'll leave the discussion of that detail to the rest of the crew here.