Hacker News Reader

Comment by porterhaney | Hacker News Reader

Adding to Sam's post I'd like to see employees made aware about tools like 83(b) elections to decrease their tax liability.

View on HN

I actually had to explain 83(b) elections to HR at my current job. I don't think it's just employees that need to be made aware of them...

I have tried to figure this out: is there any point to doing forward exercise and 83(b) election with ISO options, which is what most employees get?

do you (or anyone else) know what happens if you do an 83b election then leave the company before 4 years?

Also, this doesn't really help post A, particularly if you're getting pretty senior and have a bunch of experience. At my last place, I would have had a $50k bill to do an 83b. I could write that check but goddamn is that a lot of cash to part with.

edit: thank you @rosser

Typically, the company will buy back unvested shares at the strike price if you've forward exercised them.

Ask to forward exercise when joining. From what I understand, there isn't a negative impact on the employer, you are just being granted RSU's that they have an option to buy back for $0 before your cliff, and then convert to ISO's at your cliff. You can file that 83b election immediately, which will substantially drop your tax burden.

Yep, we offered this to all of our employees at Hired after our seed round, but before our $15m Series-A. The majority took the early exercise option once they understood it.

It's a massive lift for our team (based on tax savings) when an eventual liquidity event occurs, with no downside for the company other than additional paperwork and some legal costs.

right right, but I have to (1) come up with $50k in cash (in my example), and (2) if the job isn't working out, I want the fraction of my initial payment back upon leaving and it isn't clear this happens...

Early exercise makes the most sense for seed stage companies where the exercise price is still low... at companies where you have to spend $50K or more to exercise, I've seen loans being handed out by the company to its executives to make it possible for them to take advantage of it.

Any insight into why a company wouldn't allow forward exercising? The legal/finance team at my company refused to do it, though I wasn't given an explanation why.

* It's extra hassle/paperwork.

* Employees have less incentive to stay because they won't run into the AMT "handcuff" situation (where if they leave they have to exercise their options or lose them, and they can't afford to pay the taxes to exercise the options).

* More employees will actually exercise their options before liquidity, which means more minority shareholders.

Reply on news.ycombinator.com