| The pain with american stock options is you have to pay tax on exercise & liquidation with private non-liquid stock. When you exercise stock options in canada you only have to pay on actual liquidation, not on exercise. So for example you have an option for 0.10, the FMV is 0.50 when you exercise and you eventually liquidate at 1.00. In the USA you have to pay tax in the 0.40 'gain' right when you exercise. Then when you sell at 1.00, you pay another tax on the 0.50 gain that you had. The problem with paying tax on that 0.40 'gain' right away is you cannot sell the stock you receive easily to anyone like a public company. Also capital losses can only tax deduct your real income a small amount in the USA. The rest stays around as a credit for your capital gains. So in the USA, there are large incentives to not exercise your startup stock options, and on top of it, they typically expire 90 days after quitting. In Canada, when you exercise you pay no tax, but when you liquidate you pay tax on the 0.90 'gain'. I don't know how the long term / short term capital gains interact in this situation. Capital losses can also deduct fully from your income, so the pain of a startup that goes south is significantly less. I don't know the details that well, so what is actual reality could be different. Go consult professionals. |
This is exactly what happened to me in 2002. The IRS wanted me to pay about 180% of what I actually earned from an options transaction in taxes. The employee stock purchase plan interaction only made it worse, thanks to the difference between long-term and short-term capital gains.
It was a complete CF, and made me ultra-paranoid about non-paycheck compensation forever after.
Don't just consult a professional. Form an angry mob and yell at some politicians. Try to get paid for your work with cash instead of options.