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Pre-IPO

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Pre-IPO

Pre-IPO explores the tricky world of stock grants in private companies and startups.

Browse an overview of this section below, or explore the subtopics to the left.

Learn key terms and concepts in Basics. Special stock options sometimes used by privately held companies are the subject of Early-Exercise Options. Learn what an IPO may mean for your stock grants in Going Public.

Selected Articles

Going Public

Stockbrokers' Secrets: Financial Planning For Equity Compensation At IPO Companies

My clients who work at startup companies preparing for an initial public offering (IPO) are giddy with thoughts of the wealth and opportunities their pre-IPO stock compensation will provide. I try to set them straight with five financial-planning points that may help to manage their post-IPO expectations.
Going Public

Your Company Is Going Public: How Your Stock Compensation May Change This is premium content

Podcast included! As privately held companies prepare for their market debuts, they make changes in their equity compensation programs beyond just stock options. This article looks at some of the shifts you can expect in your stock grants from the startup stage through the IPO and the post-IPO periods.
Going Public

Pre-IPO Company Employees: Their Stock Option Tax Dilemma This is premium content

The biggest surprise for employees with stock options at pre-IPO companies is often the amount of taxes they need to pay when their company goes public or is acquired. When they exercise their options after the IPO or as part of the acquisition, selling the stock at the same time, a large chunk of their proceeds goes to pay federal and state taxes. This article looks at ways to reduce this tax burden.
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Basics

Understanding The Risks In Your Pre-IPO Stock Options (Part 1) This is premium content

Employees in startup companies often have misconceptions about their stock options and restricted stock. Understand what could happen to your stock options or restricted stock in venture capital financings, in an acquisition, or in an IPO. Part 1 looks at M&A deals; Part 2 analyzes IPOs.
Going Public

Understanding The Risks In Your Pre-IPO Stock Options (Part 2) This is premium content

Stock options and restricted stock in pre-IPO companies can create substantial wealth, but you need to understand what might happen to your stock grants in venture capital financings, in an acquisition, or in an initial public offering. While Part 1 looks at venture financings and M&A deals, Part 2 analyzes IPOs.
Early-Exercise Options

Early-Exercise Options: Clarifying The Confusion And Risks (Part 1) This is premium content

Deciding whether to exercise now or later has always been difficult. It has become even more confusing with a twist at pre-IPO companies that allows you to exercise options immediately upon grant.
This is simply a selection of the many articles in this section.
Use the navigation to the left to explore all of the categories in this section.

Selected FAQs

Basics

NEW! Has there been a tax-law change for stock options and restricted stock units (RSUs) in privately held companies?

Not yet. Currently, the tax treatment of options and RSUs in public and private companies is still the same. However, in September 2016 the House of Representatives in Congress passed the...
Basics

What are the top 10 questions I should ask about equity awards I receive at a privately held company?

Once you know the size of your grant, you must find out the following before you...
Basics

How do I value options and stock in a privately held company? This is premium content

Different methods can be used. The valuation of options and stock issued by private companies is more art than science. At least in the context of valuations for estate and gift tax purposes, the IRS has admitted...
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Basics

How do stock grants in privately held companies differ from those in publicly traded companies? This is premium content

The core concepts of equity compensation are similar. The tax treatment is also the same, even for shares that are restricted securities, which can present a tax dilemma. The differences include the following...
Basics

Why doesn't my employer offer me equity compensation?

If your employer is a for-profit corporation, it probably can offer stock options, restricted stock, or other types of equity compensation to its employees. There may, however, be many reasons why your employer is not offering stock grants...
Basics

UPDATES! How do privately held companies create liquidity for employees' options and stock, other than going public or getting acquired? This is premium content

Stock in privately held companies lacks liquidity, is not registered with the SEC, and usually has company-imposed contractual resale limits, so resales are difficult and need to follow the requirements of SEC Rule 144. Some private companies allow resales of stock by...
Early-Exercise Options

Why do some companies grant stock options that are immediately exercisable before they vest and are subject to a repurchase right by the company?

This is done mostly by startup and private companies. Early-exercise stock options allow you to exercise when the stock price is low and then start your capital gains holding period. The risk is that...
Early-Exercise Options

Is a Section 83(b) election ever required for grants of stock or options in privately held companies?

A Section 83(b) election is applicable when a substantial risk of forfeiture exists in the underlying shares of an equity grant. In privately held companies, an 83(b) election is made upon...
Basics

Any survey data on stock grants in privately held companies? This is premium content

While it is hard to find data, we have located a few sources. The data and examples from the surveys summarized here show that...
Basics

How does a private company decide on the size of a stock grant? Any data on grant sizes? This is premium content

Unlike public companies or large private companies that may have grant guidelines, most private companies determine the grant size by a combination of factors. Surveys show that...
Basics

How do pre-IPO and other private companies determine exercise prices? This is premium content

At pre-IPO and other private companies, boards of directors usually determine exercise prices for stock options. They base them on the stock's fair market value. Methods for valuation include...
This is simply a selection of the many FAQs in this section.
Use the navigation to the left to explore all of the categories in this section.