But ... why?<p>I buy risky stocks. They go up. I am lucky I pay tax on the profit. All good<p>To me this smacks of using taxpayer money to subsidise founders in incentivising their employees. Yes it's a risky investment. If it's you and co-founders, go for your life. The minute it's an "employee" either give them more stock to compensate for the tax to come or pay them so the lower equity does not matter.<p>At some point stop shooting for the moon and start being part of society.<p>if society is so shit we need millions to get out of it, there's your problem
The risk is exponentially higher as the 409a goes up. That said, given your current life (single, 20s, with some cash on hand and truly vested in a company) and the total cost to exercise (maybe $1-2k) it might make sense. But a lot of things have to line up for this to be beneficial, otherwise you’re better put the money on a roulette table.
If you are a founder and even if you are not resident in US, do file it (just in case). The cost is likely a visit to the Post office and price on the stamps (prior to e-signing becomes the norm/official).
I've worked at 2 startups where we bought our private stock for $0.001 (tenth of a penny) a share. It had some internally made up value and we pad taxes on the difference. It was explained to me that if we had an IPO in the future that the taxes would be long term capital gains rates instead of short term because we had held the stock over a year. In the end I spent $200, both startups failed, and I lost my $200. It's more of a silly story and a warning against believing anything startup founders tell you.
I don't live in the US so I don't feel very concerned but I still wonder. What happen if you loose your job before vesting? My understanding is that you loose your promised shares in that case. If you are worried about this happening, wouldn't that make 83b election a risky bet ? You would not want to risk paying taxes on money you never saw the color of, would you ? Or is there mechanisms for getting those paid taxes back ?
Instead of doing this, simply don't have the assets vest and own them fully at the beginning at essentially a $0 cost basis. If you're the founder you should stack all the cards in your favor. Vesting periods should be for employees - also make sure they have long cliffs so you can claw back their equity.