> If you join an early stage company and you have a decent amount of excess capital, early exercise everything and file an 83(b) election. The reasons for doing this: starting the QSBS clock, starting the long term capital gains clock, not needing to worry about your options expiring.
I don't think this is ever worth the risk. If you're even thinking of doing this for QSBS purposes... the amount of tax you'd incur is way too much. Even if you have "excess" capital, you may as well put the $50k+ into a shitcoin and you'd see a much quicker return (or lack thereof). For most people where $50-100k+ in tax is a trivial amount to worry about, why are you joining as an employee? Clearly you've made a lot of money in the past... Just be a founder instead. You're taking on just as much risk.
> If you join an early stage company and you don’t have much capital, don’t do anything just yet. Try to negotiate for an extended post termination exercise window.
For 99%+ of people joining startups as regular employees, this is what you should be doing. If you leave the company before it becomes liquid, exercising the shares can be super risky. We've been waiting on several very well known companies to go public for a long time now. Who knows when they'll go public. At that point, you've spent possibly hundreds of thousands to exercise your shares, hundreds of thousands more in taxes... and they might be worthless and you can maybe deduct $3,000/yr for who knows how long.
> If you can get liquidity at some point, and you think liquidity would improve your life, you probably should.
It is unlikely though.
IMO, until tax law (and especially market conditions) changes - I do not believe in joining any private company unless you are convinced they will IPO within the year. This is assuming you care about compensation significantly.
FYI the whole point of early exercise + 83b election is that you "pay" all tax due, but the tax due is $0, so you don't pay anything. There _is_ non-trivial risk of sinking liquid cash into illiquid startup stock, but this risk has nothing to do with tax.
If you’re joining after there’s been any money raised, you’re likely triggering some taxes.
How many people are joining startups that haven’t had a 409A yet? I’ve joined seed stage companies and even then - there’s a FMV that would trigger taxes.
My more general point is that you should be a founder (cause it’s what you want to do) or join a pre-ipo (cause you need employment/money).
I don't think this is ever worth the risk. If you're even thinking of doing this for QSBS purposes... the amount of tax you'd incur is way too much. Even if you have "excess" capital, you may as well put the $50k+ into a shitcoin and you'd see a much quicker return (or lack thereof). For most people where $50-100k+ in tax is a trivial amount to worry about, why are you joining as an employee? Clearly you've made a lot of money in the past... Just be a founder instead. You're taking on just as much risk.
> If you join an early stage company and you don’t have much capital, don’t do anything just yet. Try to negotiate for an extended post termination exercise window.
For 99%+ of people joining startups as regular employees, this is what you should be doing. If you leave the company before it becomes liquid, exercising the shares can be super risky. We've been waiting on several very well known companies to go public for a long time now. Who knows when they'll go public. At that point, you've spent possibly hundreds of thousands to exercise your shares, hundreds of thousands more in taxes... and they might be worthless and you can maybe deduct $3,000/yr for who knows how long.
> If you can get liquidity at some point, and you think liquidity would improve your life, you probably should.
It is unlikely though.
IMO, until tax law (and especially market conditions) changes - I do not believe in joining any private company unless you are convinced they will IPO within the year. This is assuming you care about compensation significantly.