A lot of people don't realize that you can exercise ISOs before they vest. If you are sure that you are going to be exercising your options there is no reason to wait until they vest and, in fact, there are disadvantages to doing so.
As soon as you get your options (within 30 days. there is a time limit.) you tell your company you want to exercise then and file and 83B with the IRS indicating that you have done so. This avoids potential AMT taxes at the time of exercise and starts to clock on making your gains long term capital gains which are taxed at a lower rate.
It's a great practice to do, if you believe the company is going to do well. Goes a long way towards minimizing the AMT burden.
The key thing is that you want the delta (between exercise price and FMV) to be as small as possible. Of course, none of that matters if the company isn't going to succeed anyway.
* And yes, I have done this. I early exercised all of my shares at Twilio.
The key thing is that you want the delta (between exercise price and FMV) to be as small as possible — at the time of exercise.
If you exercise any time but (effectively) immediately upon being granted your ISOs, you're liable for the taxes on the delta between your strike price and the FMV at time of exercise. If you exercise immediately, that should be zero. But it's that delta — between strike price and FMV at time of exercise — that can factor into AMT in a particularly surprising, and often very unpleasant way.
Forward-exercising and making an 83(b) election also starts the clock ticking on capital gains tax. Effectively, if you're starting at a brand new unicorn, and exercise your entire grant on Day 1, you'll only owe Long-Term Capital Gains tax (15%, instead of regular income rates — or, worse, AMT) on the entirety of your (initial) option grant, the day you hit your vesting cliff.
IANA Tax Attorney, or Accountant. Caveat lector.
In other words - I get 10k options at $1 strike price, in order to exercise within 30 days I need to pay $10,000. Correct?
If the delta between the strike price and the market price is large enough, you might actually pay the IRS more than you'll pay your company.
That doesn't mean that your preference should preclude other people from acting differently.
AMT is a quick fix to allow the government to tax the transfer of assets per se.
This guide basically convinced me I need to talk to an attorney and accountant haha.
Access: One often doesnt have an option to buy shares in a private company besides the granted options.
Control: If one had 49% of share and options as you described for 2% one could take control of the company? Extremely edge case.
She could hold them until just before the expiry to see if they do bounce back in the window.
