Become a better investor
Lesson in Course: Ambition reviews (beginner, 5min )
Part 3 of Use stock at work
If we are planning to sell our shares, we must first exercise our options. However, exercising our stock options can be risky.
Early exercising means that we execute our right to purchase stock in the company even before we own them. To early exercise, we need to file an 83(b) election with the IRS.
When we exercise our NSOs, it will look like we made income to the IRS regardless of whether we can sell the shares for cash.
ISOs have tax incentives baked in; however, they also have requirements for their tax advantages. If we meet these requirements, our equity is considered a qualified disposition. Failing to meet the requirements results in a disqualification for the incentives.