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?
Filing Taxes After Exercising Start Up Options
21–30 of 51 posts
Re: Filing Taxes After Exercising Start Up Options
#22Earlier quoted context omitted.
Yes, this is true. I will add that I have found that if you ask hard enough there is a good chance that companies that say that they don't do this at first will end up allowing you to do so. There's really no good reason for them not to.
There is one "good reason". To hand cuff and trap employees. I hope that the incidence rate for this is low, but it must be non zero. (I think pre series A companies should give out RSUs and not options to avoid these situations)
the "early exercise" that harryh refers to carries the same handcuffs as an option grant - a (typically) four year vesting schedule. The difference is that instead of vesting "the option to purchase shares" you vest the removal of the option for the company to repurchase the shares it sold you, at the original purchase price. In other words, if I exercise early and leave after two years, the contract states that my employer can purchase my unvested shares back at the original price.
Re: Filing Taxes After Exercising Start Up Options
#23I 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.
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).
Re: Filing Taxes After Exercising Start Up Options
#24Semi 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 ind…
What happens if/when you leave before all your ISOs have vested? Do you forfeit the exercise price for the unvested stuff, or does the company typically refund it?
the company refunds it. technically, what you generally agree to when you early exercise is to give the company the right to purchase the unvested shares back from you at the original purchase price.
Re: Filing Taxes After Exercising Start Up Options
#25If 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?
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.
Re: Filing Taxes After Exercising Start Up Options
#26Earlier quoted context omitted.
There is one "good reason". To hand cuff and trap employees. I hope that the incidence rate for this is low, but it must be non zero. (I think pre series A companies should give out RSUs and not options to avoid these situations)
the "early exercise" that harryh refers to carries the same handcuffs as an option grant - a (typically) four year vesting schedule. The difference is that instead of vesting "the option to purchase shares" you vest the removal of the option for the company to repurchase the shares it sold you, at the original purchase price. In other words, if I exercise early and leave after two years, the contract states that my e…
An option grant where the spread has become large enough that the employee cannot cover the tax burden upon exercise effectively handcuffs said employee to the company until a liquidation event.
Re: Filing Taxes After Exercising Start Up Options
#27Earlier quoted context omitted.
What happens if/when you leave before all your ISOs have vested? Do you forfeit the exercise price for the unvested stuff, or does the company typically refund it?
the company refunds it. technically, what you generally agree to when you early exercise is to give the company the right to purchase the unvested shares back from you at the original purchase price.
The caveat is that you lose whatever taxes you paid on exercising unvested shares. Gotta be really careful with that, as the taxes could cost way more than the exercise itself.
Re: Filing Taxes After Exercising Start Up Options
#28Earlier quoted context omitted.
What happens if/when you leave before all your ISOs have vested? Do you forfeit the exercise price for the unvested stuff, or does the company typically refund it?
the company refunds it. technically, what you generally agree to when you early exercise is to give the company the right to purchase the unvested shares back from you at the original purchase price.
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Re: Filing Taxes After Exercising Start Up Options
#29Earlier quoted context omitted.
There is one "good reason". To hand cuff and trap employees. I hope that the incidence rate for this is low, but it must be non zero. (I think pre series A companies should give out RSUs and not options to avoid these situations)
the "early exercise" that harryh refers to carries the same handcuffs as an option grant - a (typically) four year vesting schedule. The difference is that instead of vesting "the option to purchase shares" you vest the removal of the option for the company to repurchase the shares it sold you, at the original purchase price. In other words, if I exercise early and leave after two years, the contract states that my e…
[deleted]
Re: Filing Taxes After Exercising Start Up Options
#30Earlier quoted context omitted.
the company refunds it. technically, what you generally agree to when you early exercise is to give the company the right to purchase the unvested shares back from you at the original purchase price.
The caveat is that you lose whatever taxes you paid on exercising unvested shares. Gotta be really careful with that, as the taxes could cost way more than the exercise itself.
The idea with early exercising is to not pay any taxes because you exercise at the strike price.