I recently got approved for a significant amount of stock at a tech unicorn. It should make me a multimillionaire however there's a few problems. The vesting period is 6 years. And the strike price is 10-30$. I can't afford all my options. Do people take out a loan or the span of 5 years? I'm also unsure when the company will IPO, it may be 5+ years. How can I purchase all my options if I can't afford them? (Company is not Uber, but they have a similar issue)
Zume?
Nah
You lost me. If it’s 6-yr vesting period, then you get 1/6 each year. If it’s options you don’t have to exercise. If it’s RSUs, it gets taxed when granted to you. What’s the problem here?
I can't afford all my options
Dude, you only need money to buy options when you leave. As far as I know.
Generally how options that are liquid are exercised is: 1. You give your company the check when you are ready to exercise 2. They hold the check until a short time after you receive the stock 3. You sell at least enough stock to pay for the options you just bought. Alternatively, save up a bit each month so you have cash on hand to exercise some or all of the options.
I feel like OP is confused at what he's getting exactly.
You don’t need to exercise your options immediately; most options for start ups that I’ve seen come with a 10 yr expiration. I would suggest not exercising until IPO at which point you can exercise and sell enough to cover purchase and tax liabilities. Exercising options before IPO is risky business as there is no guarantee they ever become more than Monopoly money. The only benefit of exercising early is gap gains vs. income tax based on time frames
Take a loan against your house. Ask your family for money. Borrow from your 401k.
The upside of exercising early is you can do long term cap gains. The downside is paying money and taking on risk. You should look at when the options expire, some do after 4 years which would force you to exercise (or lose the options) on that timescale
The downside is you may trigger AMT
I think trump neutered amt
Unless your company allows early exercise, you can only purchase your options as you vest. Say your option is $1 per share Current market value is $10 per share in a year when you exercise and buy the share There’s an AMT tax when you exercise and “earned” on the $9 “income”. Not only do you have to pay $1 for the share, you have to pay $9 x ~25% tax when you exercise. The only way to get out of it is to sell within a year after you buy, so pretty much whenever the IPO happens or there’s a liquidity event when someone else is willing to buy those shares off of you. This is why people have the “golden handcuffs” at many unicorns.
Is AMT credited back in the later years , for the private companies? Heard there is AMT credit for previous years if you exercised private stock options
Yes, the AMT can be used as a credit for the capital gains taxes later when you sell the stock. If you sell for less than the exercise market price, you don’t get it back though.
The strike price seems high.
that's what happens at unicorns with low floats
It's option or RSU?
Options