So, after a week of research, I'm asking HN in case anyone has been in a similar situation. Many thanks in advance.
The situation:
I'm a U.S.-based worker who has recently been hired on to a Canadian startup, and my hiring package includes stock options that vest over a four-year period. The exercise price on these options is set to the current fair market value. (That FMV is based, I imagine, on the valuation set by the pool of private investors -- this is not a publicly traded company).
My Questions:
(1) Do these options qualify for an 83(b) election? And if so, when do I file that? Some experts seem to say you don't file an 83(b) election on stock options until you exercise those options. Others seem to say that for options I should file for 83(b) election within 30 days of "grant date" (i.e. now).
(2) I'll assume the answer to the above is that I cannot file an 83(b) election until I exercise the options (e.g. at minimum one year from today). Does this mean that, at the time of vesting, if I think the value of the company will increase, I should exercise these options as soon as they vest (and file an 83(b))?
(3) Given that the FMV and strike price are equivalent at time of grant (now), do I need to do anything tax-wise this year? I imagine not, since there is not yet any inherent "value" to these options.
(4) Do I need to be aware of any double-taxation implication, since this is a Canadian-based company and I'm a U.S. worker?
(5) Is there anything else I'm overlooking here where I might curse myself down the road if I don't take action on?
My questions would be are these options qualified ISOs for US stock purposes or are they NQSO or something else.
If they're ISOs and you can't early exercise, then when the first vest date comes, you need to know the FMV at that day to consider your options. You wouldn't need to file an 83b on vested options that you exercise though; there's no election to be made, your holding date is the date of exercise and you'd have income for alternative minimum tax on the discount at that point; the type and amount of income for regular income tax would be determined when you dispose of the shares. Consider the holding requirements for a qualifying disposition of ISO shares; if you don't think you'll meet those, it makes more sense to wait and not exercise until you're ready to sell (or the options are likely to expire, if they're in the money)
On 4, I don't know anything about Canadian taxes; it will make a difference if you work within the US or within Canada, but if you work in the US as a US person, I wouldn't expect any Canadian taxes to be due; but I wouldn't trust me, I'm just a random internet person.
i think the implication here may not be correct: one component of the value of options comes from max(market price - strike price, 0), a second component comes from time value -- i.e. the expected value of the option before it expires. since there is some probability that in future the market price of the stock will exceed the strike price before the options expire, there is some strictly nonzero time value component.
i cannot comment on the tax situation. the time value component clearly has some positive value to a speculator.