4 ms·

The company's valuation increases fifty-fold. Now you decide to exercise your stock options, and you pay $20,000. You have just paid $20,000 for stock that is n

The company's valuation increases fifty-fold. Now you decide to exercise your stock options, and you pay $20,000. You have just paid $20,000 for stock that is now worth $1,000,000. The IRS now expects you to pay tax on your $980,000 in income. However, your stock is not liquid, so you can't sell it. This is why you can need "millions" to acquire your options.

ryandrake 11y ago
Why would you exercise a stock option to receive stock you can't sell? If you can't sell it, it's not worth $1,000,000--it's a piece of paper that might one day be worth more or less than $1,000,000.
- ryan-c 11y ago
  Because you'd like to do something new and if you leave you must either exercise within 90 days or lose your options.
  - ryandrake 11y ago
    So if you want to leave, your choices are: 1. Exercise your options, pay potentially huge taxes on it, and be left holding stock that is practically worthless because you can't sell it OR 2. Give up your options and move on with your life I know what I'd do.
    - ryan-c 11y ago
      It's not always that easy. People are not totally rational. Loss aversion is powerful. I've been in that situation. I'm actively avoiding putting myself in it again.
      - ryandrake 11y ago
        Fair enough, my argument relies on rational decision making.
- balls2you 11y ago
  Why work for a startup then ?
  - mahyarm 11y ago
    You were young and didn't realize these realties. 83b elections are not feasible since you have no savings to your name right out of school. (Hint: this is where part of the SV age discrimination comes from)
- s73v3r 11y ago
  Because your options are about to expire.
- nathan_f77 11y ago
  Here's the advantages of exercising stock options and filing an 83b election as soon as you join a company: * When the company has an IPO, you only pay the Long Term Capital Gains tax rate (20%), instead of the standard income tax rate (39.6%). * Once your stock options have vested, you have the freedom to leave at any time without worrying about taxes or losing your options. So you can risk tens of thousands now to potentially save hundreds of thousands later, in addition to giving you some freedom. It's very risky. The company might fail. The company might be successful, yet never have a liquidity event (acquisition or IPO). But you only join a startup if you believe it has a good chance at success. You're risking a huge amount of time and effort, so you may as well risk a bit of cash too.

ryandrake 11y ago

Why would you exercise a stock option to receive stock you can't sell? If you can't sell it, it's not worth $1,000,000--it's a piece of paper that might one day be worth more or less than $1,000,000.

ryan-c 11y ago
Because you'd like to do something new and if you leave you must either exercise within 90 days or lose your options.
- ryandrake 11y ago
  So if you want to leave, your choices are: 1. Exercise your options, pay potentially huge taxes on it, and be left holding stock that is practically worthless because you can't sell it OR 2. Give up your options and move on with your life I know what I'd do.
  - ryan-c 11y ago
    It's not always that easy. People are not totally rational. Loss aversion is powerful. I've been in that situation. I'm actively avoiding putting myself in it again.
    - ryandrake 11y ago
      Fair enough, my argument relies on rational decision making.
balls2you 11y ago
Why work for a startup then ?
- mahyarm 11y ago
  You were young and didn't realize these realties. 83b elections are not feasible since you have no savings to your name right out of school. (Hint: this is where part of the SV age discrimination comes from)
s73v3r 11y ago
Because your options are about to expire.
nathan_f77 11y ago
Here's the advantages of exercising stock options and filing an 83b election as soon as you join a company: * When the company has an IPO, you only pay the Long Term Capital Gains tax rate (20%), instead of the standard income tax rate (39.6%). * Once your stock options have vested, you have the freedom to leave at any time without worrying about taxes or losing your options. So you can risk tens of thousands now to potentially save hundreds of thousands later, in addition to giving you some freedom. It's very risky. The company might fail. The company might be successful, yet never have a liquidity event (acquisition or IPO). But you only join a startup if you believe it has a good chance at success. You're risking a huge amount of time and effort, so you may as well risk a bit of cash too.