Stock Options Taxation

You are taxed at your marginal rate on the value between when they are offered and you exercise, and on the capital gains rate (provided you hold them long enough) between when you exercise them and sell themIn practice you either buy them the day they are offered (but before they vest, so a gamble) to switch to the CGT rate asap, or exercise and sell in the same process which means you pay at your marginal rate. You tend to do the former if you are early series A (penny a share or so so low

In this case, the way it works is:1. You exercise your options, for a paper gain of millions of dollars2. However, you can't actually sell the shares (there are likely contractual restrictions on selling them, and even if not, there's not a liquid market)3. So you have to pay millions of dollars of taxes even though your cash flow is zero.And before you say "but they're ISOs", there's no such thing as ISO's under AMT so it doesn't help at all.

Isn't options the default rather than a grant? The tax should only apply on exercising/liquidation.

Options are not taxed until you exercise them. At that point they become an asset that contains "value" but until you exercise the option to purchase stock it is simply only the right but not the obligation to purchase stock at a particular price. When issued options you don't have to exercise them and if you don't you do not pay taxes until you decide to.Often companies offer the ability to "early exercise" options which means you buy them before they have veste

This is amazing news. Some context:It's quite common to owe taxes today for gains on the value of your stock -- which is an illiquid asset you can't sell. This puts employees in the position of shelling out cash to keep something that rightfully belongs to them, or simply abandoning it (failing to exercise) when they leave the company. This bill would defer taxes on gains up to 7 years, or until the company goes public.If you are awarded stock options, an you exercise them, you h

Beware of taxes! If you exercise at least 1 full year (366 days) before the company sells you pay capital gains tax (currently 15%) instead of full income tax (could be ~35%). I did not exercise my options early. Consequently, I coughed up over one-third of my cash to Uncle Sam in the form of taxes & withholding.

I'm not sure of the details, but I think it's rooted in tax law -- that the options are classified differently if they're exercised within a year of their creation.

Exercising options has tax consequences.

In the US, any stock held past December 31 of the year in which it was obtained by exerciing an ISO (the most common kind of startup option) generates "income" according to the Alternative Minimum Tax (AMT).AMT is essentially a completely different taxation system that runs in parallel to regular income tax in America. If the shares you exercise are worth a good amount, you will probably wind up paying AMT, especially if you live in a place with high state and local taxes.After c

But ... doesn't the tax come due only if you exercise the options?