Explanation · Startup Funding

What are the tax implications of exercising startup options?

Olga Dybenko QA tester

January 20th, 2017

I get that if I leave my startup today I have 90 days to exercise my options.

I get that I'll have to pay the agreed 'strike price'

But everything after that is unclear to me.

Would I be paying tax as if I'd made capital gains in the amount of the delta between the strike price and the stock's value today? Would the stock's value today be based on the company's valuation at the most recent round of funding?

If the company goes on to raise more VC funding, would I be liable in future years for the 'capital gains' on this stock?

If the company went on to fail, would I be entitled to tax breaks for loss of stock?

etc.

I'd love to see a clear explanation of all this stuff from someone who's been through it or just knows it. Thanks!

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

January 20th, 2017

Olga: Your bio says that you are in the Ukraine and I doubt that anyone here is knowledgeable about Ukrainian tax law. Tax law is complex in every jurisdiction. This is a question that you should ask a specialist in the jurisdiction where you will file your tax return. A wrong answer can be very expensive.

Dane Madsen Organizational and Operational Strategy Consultant

January 20th, 2017

If you were in the USA, the difference between the strike price and the value at exercise is considered W2 income. After you pay the taxes, any other increase or decrease is capital gains.