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Pre-IPO: Early-Exercise Options

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

Bruce Brumberg
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.

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

David Cowles
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.

Early-Exercise Options: Clarifying The Confusion And Risks (Part 2) This is premium content

David Cowles
Early-exercise options are associated with risks and tax complexities. These issues, however, should not scare you from taking advantage of them when you know how to maximize their value.

Early-Exercise ISOs Complicated By Final IRS Regulations This is premium content

Michael Frank
Featuring reverse vesting, early-exercise stock options are usually granted only by pre-IPO companies. The IRS regulations on ISOs increase risk in early-exercise options, making it crucial that you understand the tax treatment.

Final ISO Regulations Affect Stock Plan Design, Optionholders, And Advisors (Part 1)

Ellie Kehmeier and Elizabeth Drigotas
The final rules clarify and consolidate a tangle of proposed, temporary, and final regulations, as well as other guidance, that governed the taxation of ISOs, including rules for disqualifying dispositions.

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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...

What is a "repurchase right"? This is premium content

A repurchase right is a company's contractual right to buy from an employee any stock resulting from the exercise of a stock option or other stock grant. The repurchase right can be exercised by your company even if...

When should I prefer to immediately exercise an option into stock that is still subject to vesting and/or a company repurchase right? What is the risk? This is premium content

Early exercise gives employees who can pay the exercise price the opportunity to start their capital gains holding period early. If your plan permits this strategy, it makes sense in certain situations, such as...

My company allows me to exercise my ISOs early and receive stock subject to a company repurchase right during the vesting schedule. Does my early exercise before vesting affect the calculations for AMT or disqualifying dispositions? This is premium content

Generally, stock options are exercisable when they vest. However...

Can my company help me file my Section 83(b) election?

A survey in 2013 by the National Association of Stock Plan Professionals found that...

Is a Section 83(b) election that taxes you on the value of the stock option spread at early exercise (vesting required for resale) ever revocable or rescinded? This is premium content

The Section 83(b) election is irrevocable unless you show a...

Can I exercise my options before they are vested and make a timely Section 83(b) election to be taxed on the spread at that point? This is premium content

Generally, stock options are exercisable only when they vest. However, some pre-IPO companies grant options that...

I have early-exercise options. If I leave my company before the stock vests, or if the company goes out of business, is it required to repurchase my shares? This is premium content

When your plan allows options to be exercised before they vest, the stock you receive is subject to a company repurchase right if you leave the company before the vesting date. Under the typical early-exercise provision in most stock plan documents...

My pre-IPO company lets me exercise options still subject to vesting. I did so and received stock subject to a company repurchase right. I am now leaving my job before the shares vested. What are the tax consequences if I forfeit the stock for which I have made an 83(b) election to be taxed at the time of exercise? This is premium content

When you exercise options that are still subject to a vesting schedule, you essentially have purchased restricted stock. You then file a Section 83(b) election...

I exercised stock options in a pre-IPO company and paid tax on the spread at exercise. The price used for the fair market value (FMV) now seems high, given the expected IPO price. Can I use the IPO price to recover taxes that were paid? This is premium content

You take this risk in a pre-IPO situation, when valuation...

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