Employee Stock Options - US Startup
I have got an offer from a US startup that includes stock options. But their exercise period is of three months. While I did some research and got to know that an individual has to pay tax while exercising stock options, so if i exercise I will be taxed on (Stock value - exercise price)*Quantity. The amount will be huge. Need your inputs on how i should navigate this given that exercise period is going to be three months, so If I leave I will have to pay this amount within 3 months.
While exercising, you just have to pay the exercise amount within the three months time period.
You'll be taxed only when you liquidate these exercised options which generally isn't bound by any time limit but confirm with your HRBP once.
No. The moment you exercise you will receive the stocks. You will be liable to pay the tax on the received value of stocks. That's why you take angel tax exemption for companies in india. For US, you'll have to show the 409A valuation certificate and pay tax on that in India
I can help here based on a few conversations I had with my friend in a similar situation. If you have a three-month exercise period for your stock options, here’s how you could navigate through:
- Tax Implications: Exercising options means paying taxes on (Stock Value - Exercise Price)*Quantity.
- Cash Flow: Ensure you have the funds to cover this tax liability within three months.
- Evaluate the Company: Assess the startup’s growth potential to justify the tax burden.
- Consult a Tax Advisor: They can help optimize your strategy and tax impact. My friend did this and he understood the pros and cons of exercising the stocks.
- Financing Options: Look into financing services to cover exercise costs and taxes.
For more details, check resources like https://www.investopedia.com/terms/s/stockoption.asp, IRS guidelines - https://www.irs.gov/newsroom/employee-stock-options, and Fairmark - https://fairmark.com/compensation-stock-options/