Which is more favorable ISO or RSU ? Most startups offer only ISOs. But I am at a loss as to why would people put their own capital to get paper money when they are exercising options at a strike price? At what upside % does it make it worth putting your own money in ? I am sure I am missing something and ISOs can't be that bad as almost all startups give ISOs and tenured and smart people from FAANG and elsewhere move to startups. When a startup moves from ISOs to RSUs in Comp - what does that imply ? Are they close to IPO, doing well OR they are not doing that great ? For ex., I hear Verkada moved from ISOs to RSUs recently. Please shed some light if you know more about ^. Update: Lot of relevant information here! Thanks! Although, I didn't know there were double trigger and single trigger RSUs. Also, what happens to ISOs in case the startup gets acquired ? A follow Blind tax: TC: 295 Yoe: 7 #equity #startup #iso #options #rsu #faang
People on blind are scared of risk so they will vote for RSUs
ISOs have way better tax treatment. RSU get taxed as ordinary income, and in some cases (like Uber) employees have actually ended up owing more tax than they cashed out. Incentive ISO are tax free if granted at the existing 409a valuation. Then, when (if) you sell the stock, it's long term capital gains at worse. Best case scenario it was a "small business" for tax purposes (assets < $50 million) and it's 100% tax free. The flip side of course is that you have to pay to play - RSUs will usually not cost you any money (Uber example notwithstanding). And if you want very favorable tax treatment, you have to exercise when the company is really small.
Wait could you explain the best case scenario? Can this be applied to regular workers or just C-suite
IRS section 1202 says that you can exclude up to $10 million of gains on "qualified small business stock". If you exercise your ISO (assuming the startup allows early exercise) when it has less than $50 million in assets, then at the exit event the first $10 million is exempt for capital gains tax.
holloway guide
Startup RSUs can be dangerous for the employee. Say you get “150k worth” RSU for the year in addition to your base. You’ll have to pay income tax on these in the year of vesting (30%*150 =45k). If stocks are still pre-IPO, this will come out of your base. This is why pre-IPO companies do ISOs as it helps defer taxation to exercise time.
This problem is solved by double trigger vesting
wrong. don’t post this wrongness
DMGs
I prefer ISOs cause they mount better in Windows 10
I would love an infographic for this. My smoothbrain is thoroughly confused by the tax implications of iso v rsu v nqso, sell to cover, withholding adjustment for higher tax bracket, etc.
Pre IPO: ISO >> double trigger RSU > single trigger RSU
I should clarify, if there is liquidity pre IPO then regular RSUs may be better/the best (Ie. If the RSUs themselves can be withheld to cover taxes)
When ISO is exercised pre-IPO, does one have to pay tax on it ? Even though essentially we just put in our money to buy at strike price ?
They serve completely different purposes. It’s like saying “what is better a banana or a hot dog?”
A banana hotdog obviously
Both of those serve the same purpose of satiating hunger.