Re:Guide to Your Equity
by brianwawok on Friday October 09, 2015 @05:57PM
(#10363495)
Is $0 legal? I thought normally you gave the stock 1 billionth of a penny of value and paid your $1 in tax.
It's legal, not because the stock has no value, but because the spread (i.e. the difference) between the strike price of the option (e.g. $0.01/option) and the stock's value (e.g. $0.01/share) is $0. That's the profit, so that's what you pay tax on.
Yes, you can file an 83(b) when early exercising NSOs. In fact, some lawyers may advise you to take NSOs over ISOs for the portion of the grant you early exercise.
Re:Guide to Your Equity
by GauntletWizard on Friday October 09, 2015 @05:10PM
(#10363300)
It sounds like an incredibly complicated process to get to "These options are no longer options, they are stock with basis zero"; Am I correct?
It's a little complicated, but it can be very helpful. The basis isn't zero either, it's what you paid to exercise the option. The tax due at time of exercise is $0 because the fair market value is the same as what you paid (assuming you exercise either at the time of the grant, or at least before the next evaluation of the FMV). The benefit is if/when you sell, if you've held everything for the right period, you can pay long term capital gains tax on the gain, instead of ordinary income like you would if you held onto the option as an option.
Yes, if you early exercise ISOs, you would want to file an 83(b) to pay the $0 ordinary income tax burden up front (and get long term capital gains later). I'm not sure if you can file an 83(b) on an NSO.