[xxbondsxx]

> Wouldn't the prudent thing to do be to sell at least enough stock to pay the tax?

It's not liquid yet, that's the issue. That's what is nice about most RSU plans -- they immediately sell to cover, so you don't receive a ton of stock with an attached tax bill.

But illiquid options are different; the capital gains tax is for the paper-wealth you just received. That same paper wealth can evaporate, but the tax bill remains.

[tuna-piano]

So you have an asset that is considered worth a price, but you cannot buy it or sell it at that price? Seems to me an unfortunate tax policy.

[jonathankoren]

It's the exercise and hold that gets you. If you do a same day sell, you have the money to cover the taxes immediately, since you sold. If you exercise and hold, you pay the money to exercise, and now owe taxes on the asset at fair market value of the assets when exercised, which you might not have because your bank account is actually decreasing. In the future, if the asset loses value, even if you sold all of it, you may still be left with a tax bill you can literally never repay.

[infinite8s]

Except you can't sell if the company is still private.

[jonathankoren]

That's not true. The market it very illiquid, but you can sell it. Sharespost is one place.