Ask HN: U.S. worker receiving stock options from Canadian startup | Hacker News Reader

Ask HN: U.S. worker receiving stock options from Canadian startup

2 pointsthrowaway4893225 comments

The four tax lawyers I've spoken to on an "advice" basis seem to think this is a complicated situation that calls for a specialist. Unfortunately, I haven't found a specialist who I can afford. And the ones I can afford have not been able to guarantee me that they can actually help me.

So, after a week of research, I'm asking HN in case anyone has been in a similar situation. Many thanks in advance.

The situation:

I'm a U.S.-based worker who has recently been hired on to a Canadian startup, and my hiring package includes stock options that vest over a four-year period. The exercise price on these options is set to the current fair market value. (That FMV is based, I imagine, on the valuation set by the pool of private investors -- this is not a publicly traded company).

My Questions:

(1) Do these options qualify for an 83(b) election? And if so, when do I file that? Some experts seem to say you don't file an 83(b) election on stock options until you exercise those options. Others seem to say that for options I should file for 83(b) election within 30 days of "grant date" (i.e. now).

(2) I'll assume the answer to the above is that I cannot file an 83(b) election until I exercise the options (e.g. at minimum one year from today). Does this mean that, at the time of vesting, if I think the value of the company will increase, I should exercise these options as soon as they vest (and file an 83(b))?

(3) Given that the FMV and strike price are equivalent at time of grant (now), do I need to do anything tax-wise this year? I imagine not, since there is not yet any inherent "value" to these options.

(4) Do I need to be aware of any double-taxation implication, since this is a Canadian-based company and I'm a U.S. worker?

(5) Is there anything else I'm overlooking here where I might curse myself down the road if I don't take action on?

For 1, 2, and maybe 3; often people talking about 83(b) will have the ability to early exercise; that is to exercise the options before they vest. If you leave before vesting, the company has the opportunity (but not the obligation, unless mentioned in the contract) to buy the shares back for the exercise price.

My questions would be are these options qualified ISOs for US stock purposes or are they NQSO or something else.

If they're ISOs and you can't early exercise, then when the first vest date comes, you need to know the FMV at that day to consider your options. You wouldn't need to file an 83b on vested options that you exercise though; there's no election to be made, your holding date is the date of exercise and you'd have income for alternative minimum tax on the discount at that point; the type and amount of income for regular income tax would be determined when you dispose of the shares. Consider the holding requirements for a qualifying disposition of ISO shares; if you don't think you'll meet those, it makes more sense to wait and not exercise until you're ready to sell (or the options are likely to expire, if they're in the money)

On 4, I don't know anything about Canadian taxes; it will make a difference if you work within the US or within Canada, but if you work in the US as a US person, I wouldn't expect any Canadian taxes to be due; but I wouldn't trust me, I'm just a random internet person.

Thank you for your thoughts! I believe these are actually NQSOs (not ISOs), per section 1.05(a) here.[1] Does that change your advice at all?

I'm not entirely sure whether I can early exercise. There's nothing about it in my contract though, so unless this is a default of some sort, I assume it's not possible for me. I can ask my employer though.

[1] https://serbinski.com/stock-option-compensation-us-and-canad...

NSQOs are simpler, there's no AMT, but there's also no chance to get the discount as a capital gain instead of ordinary income.

It's worth checking with your employer if early exercise is possible, but it's not the default and it should be mentioned in the options documentation.

With NSQOs, in a way, there's less pressure to exercise earlier, because there's no holding period for preferential treatment (isos get better tax treatment if held for at least 2 years after the grant and at least 1 year after exercise); so with ISOs, you might exercise and then want to hold and have risk there... With NQSO, if the stock is liquid, there's no reason to not sell when you exercise. If the stock isn't liquid, maybe you want to exercise and limit your ordinary income gains and hope for long term capital gains. Maybe you don't... it's always a bit tricky.

> the FMV and strike price are equivalent at time of grant (now) [therefore] there is not yet any inherent "value" to these options.

i think the implication here may not be correct: one component of the value of options comes from max(market price - strike price, 0), a second component comes from time value -- i.e. the expected value of the option before it expires. since there is some probability that in future the market price of the stock will exceed the strike price before the options expire, there is some strictly nonzero time value component.

i cannot comment on the tax situation. the time value component clearly has some positive value to a speculator.

Oh wow, thanks for the heads up. This was the one assumption I felt fairly confident I had right, so it's good to know I need to give this a second look.

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