Founder/Employee Stock Options
Tax Elections for Founders and Employees
Most entrepreneurs know vaguely that stock options are income, but income in the future so therefore ignore it. However, if setup properly, we can massively reduce your future tax burden very inexpensively at this time. The tax code allows you to either be taxed on sale or on receipt, as well as let you set your holding dates despite different vesting schedules.
For later round employees, a poorly chosen election can result in a massive tax bill on a speculative option. For founders and early round employees, a poorly chosen election may result in a massive tax bill on exit.
In High Tax States, The Impact is Huge
The difference between regular income rates (as high as 37%) and long term capital gains (capped at 20%) can be substantial for founders who may be looking at a multi-million dollar payday in the future.
In high tax states like Massachusetts, California, and New York, the consequences can be even more severe. We have extensive experience guiding founders in their stock option tax election, helping them make the right decision and filing the relatively obscure paperwork with the IRS. Many startup founders, used to doing things themselves with Turbotax, may find that they owe millions of dollars more by failing to properly document this process.