Pre-IPO: Early-Exercise Options

Unexpected Risks Of Early-Exercise Stock Options This is premium content

Terence Kelly and Jamison Klang
Companies grant early-exercise stock options mainly to limit the taxes you will pay at exercise or later at the sale of the stock. However, an exercise of incentive stock options (ISOs) can have negative tax consequences in a disqualifying disposition (e.g. an early sale of ISO stock). This article reviews the tax effects of early-exercise ISOs and compares the tax results to those of early-exercise nonqualified stock options.
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