
Filing Taxes After Exercising Start Up Options - remyg
https://bradygentile.com/filing-your-taxes-after-exercising-and-holding-private-startup-shares/
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abalone
I would add one thing: if you're really going to exercise options before you
can sell them, which is what this article's about, you really should calculate
the tax consequence _beforehand_. As is only hinted in the article, the AMT
can be enormous if the valuation has grown a lot since the grant date.

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hesdeadjim
Also an issue with NQSOs, though AMT doesn't enter the picture just regular
cap "gains" (I use the term loosely because the IRS doesn't care that you have
no way of actually realizing that gain as cash).

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harryh
Semi related to this blog post:

A lot of people don't realize that you can exercise ISOs before they vest. If
you are sure that you are going to be exercising your options there is no
reason to wait until they vest and, in fact, there are disadvantages to doing
so.

As soon as you get your options (within 30 days. there is a time limit.) you
tell your company you want to exercise then and file and 83B with the IRS
indicating that you have done so. This avoids potential AMT taxes at the time
of exercise and starts to clock on making your gains long term capital gains
which are taxed at a lower rate.

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caseysoftware
Close, but not quite. The time limit is to when you have to file the 83b with
the IRS to document the early exercise. The rest of what you said applies.

The key thing is that you want the delta (between exercise price and FMV) to
be as small as possible. Of course, none of that matters if the company isn't
going to succeed anyway.

* And yes, I have done this. I early exercised all of my shares at Twilio.

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rosser
Slight clarification:

 _The key thing is that you want the delta (between exercise price and FMV) to
be as small as possible_ — at the time of exercise.

If you exercise any time but (effectively) immediately upon being granted your
ISOs, you're liable for the taxes on the delta between your strike price and
the FMV at time of exercise. If you exercise immediately, that _should_ be
zero. But it's _that_ delta — between strike price and FMV _at time of
exercise_ — that can factor into AMT in a particularly surprising, and often
very unpleasant way.

Forward-exercising and making an 83(b) election also starts the clock ticking
on capital gains tax. Effectively, if you're starting at a brand new unicorn,
and exercise your entire grant on Day 1, you'll only owe Long-Term Capital
Gains tax (15%, instead of regular income rates — or, worse, AMT) on the
_entirety_ of your (initial) option grant, the day you hit your vesting cliff.

IANA Tax Attorney, or Accountant. Caveat lector.

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iooi
Thank you for this, I exercised stock options last year but never received
form 3921 from my ex-employer. What are my next steps here? I reached out to
my employer, but I doubt they'll get back to me. Do I need to report this to
the IRS?

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kyleblarson
I think you should at least mention the option of hiring a professional
accountant.

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Apes
Anyone have a professional accountant in San Francisco they would recommended
for this sort of thing?

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buckhx
Would love an accountant rec in NYC as well.

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EternalData
There should be a guide overall on how RSUs work, especially in an early-stage
context, for startup employees. I feel like people toss percentages around but
don't grasp the meaning of what they're about.

This guide basically convinced me I need to talk to an attorney and accountant
haha.

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Buge
As I understand it, RSUs are a lot simpler. You don't need to do anything when
they are granted to you. And when they vest, they count as normal income at
the value at vest time.

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tunesmith
Is there ever any reason to exercise options with a FMV below the strike
price? I know someone who left her job and is in that situation (private
company), seems like she should just ignore them entirely and let the options
expire. I suppose if she had good reason to believe the company would bounce
back they'd be nice to have, but otherwise it seems just like buying stock for
more than the going market rate.

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maerF0x0
Access/control is the only reason I can come up with.

Access: One often doesnt have an option to buy shares in a private company
besides the granted options.

Control: If one had 49% of share and options as you described for 2% one could
take control of the company? Extremely edge case.

She could hold them until just before the expiry to see if they do bounce back
in the window.

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seibelj
If some random person on the internet wants to help me out. If I exercised my
options, and the company was purchased later the same year and my common
shares were purchased for $0 (preferred shares took all the money, leaving
common with zero), how do I file this loss?

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laxatives
I'm by no means an expert, but I believe you should ask for a 1099B with
proceeds at $0 and cost-basis at either $0 and marked as not reported, or with
cost-basis equal to your expense. If the former is the case (not reported),
you report the cost-basis yourself.

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seibelj
Thanks for the info!

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maverick_iceman
It is ridiculous to charge taxes based on fictitious paper valuations. I think
taxes should be imposed only when shares are sold resulting in cash.

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sokoloff
If you act in a certain way, you are free to accomplish that for yourself.
Only ever do a same-day exercise-and-sell. Never exercise early. Never
exercise-and-hold. Enter into a 10b5-1 that ensures you sell any shares
immediately upon vesting. I think that covers all the cases and you're
protected against being taxed on paper-only valuations.

That doesn't mean that your preference should preclude other people from
acting differently.

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maerF0x0
But it does mean that one has to abandon said "fictitious" value if ever
leaving a company (usually 90 days) .

