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Equity taxes for startup employees

Startup tax is about liquidity timing. know what is taxable before you can sell.

Rates and rules change. Check the tax year and last-reviewed date on each page, then confirm against IRS or state guidance before you file.

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At a startup, the central tax problem is timing and liquidity: you can owe tax before there is any way to sell. Whether you hold options or , and whether elections like 83(b) apply, decides when the tax actually lands.

Why this happens

Startups grant different instruments: , , or , each taxed at different moments.

Exercising options can trigger () or exposure () before any sale.

Private may have settlement conditions tied to a liquidity event; check your specific terms.

Elections such as 83(b) are deadline-driven and can change when income is recognized.

What to check

  • Exactly what you were granted and the key terms.
  • When tax is triggered under your grant, exercise, , or liquidity.
  • Whether early exercise and 83(b) are available and their deadlines.
  • Your cash position for tax with no easy way to sell.
  • What an IPO, , or acquisition would mean for you.

Common mistake

Assuming nothing is taxable until there is a liquidity event. Exercising options or shares can create tax well before you can sell anything.

Example scenario (hypothetical)

Illustration only, not your tax situation.

Example: an early employee exercises options while the company is private. The spread creates a tax bill that year, but there is no market to sell into, so the tax must come from other cash.

When to get help from a tax pro

  • You are deciding whether to exercise or make an .
  • A liquidity event is approaching.
  • You hold a mix of options and .
  • You are unsure when your equity becomes taxable.

Related calculators

Related pages

For learning, not filing

Grants, employers, and states all differ. Use your own documents and a qualified tax professional before you make decisions from this guide.