[bankim]

Elaborating on early exercise. Employee can choose to pre-exercise ISOs soon after starting job (before vesting) and file 83b. In this case, the difference between strike price and FMV is $0 and hence tax realized is also $0. This also starts ticker for capital gains sooner and if the company gets sold/IPO after 1 year from date of exercise and 2 year from date of grant then long term capital gains will apply and not short-term capital gains which is taxed as ordinary income.

This obviously depends on the strike price on joining the company and how much money employee is okay to lose in case company goes bust. If not all, some ISOs can be early exercised.

In my case, I early exercised around 25% of ISOs soon after joining. In hind-sight I should have early exercised more as the company did go IPO around 2 years after I started...

[jypepin]

"the difference between strike price and FMV is $0 and hence tax realized is also $0"

well, this is assuming your company's value hasn't increased since then. But I do agree it's usually an interesting move if you believe in the company since you'll pay taxes earlier.