1. You pay tax on the difference between the current valuation and your strike price. So if you exercise before new valuation events you save tax dollars, potentially a lot of tax dollars.
2. If the company gets acquired there are several mechanisms founders and investors use to wipe out options holders. It is harder to wipe out common stock owners. If an acquisition event takes you by surprise you may not have time to exercise.
3. You may get laid off, decide to quit, or get fired, and have only a limited time (3 months, often) to exercise your options. That might be a bad time for you to spend the case, so you may want to do it now while you are in a better position to do so.
Sorry, I missed this when you posted it. Yes you're right, you certainly will pay tax. But you'll have the proceeds from the sale to pay it with. When you exercise options for (possibly non-liquid) shares, you have to find money to pay the tax elsewhere.
If you can exercise and immediately sell the shares, point 1 isn't relevant.
Lower tax bill, as you need to pay taxes on assumed gain when you exercise your options, based on the latest 409a valuation of each share. The lowest such valuation in a startup is usually early in its life, and during your tenure, the valuation should go up steadily (or something's horribly wrong with the company's business) and thus your cost to exercise increases over time.
Another reason is more practical: it's much easier to exercise your options when the tax bill is lower and you just got a job/while you're employed (i.e. you're more plush with money), than when you're quitting/been fired and have 90 days to figure out where to get money from. Basically, it's better to be in control of when you buy, than being forced to buy or lose out.
2. If the company gets acquired there are several mechanisms founders and investors use to wipe out options holders. It is harder to wipe out common stock owners. If an acquisition event takes you by surprise you may not have time to exercise.
3. You may get laid off, decide to quit, or get fired, and have only a limited time (3 months, often) to exercise your options. That might be a bad time for you to spend the case, so you may want to do it now while you are in a better position to do so.