I am part of a tech startup and have just been brought on as the technical co-founder. My compensation is 100% equity for now, but I will likely be hired with a salary in the near future.
The problem is that the company does have a bit of value already, so I have been given the choice of receiving stock or stock options.
If I understand it correctly, if I choose stock (83b?) that there will be consequences on next year's taxes. For example, say I own 10% of the company and the company is worth $300,000, then I will have to claim an additional $30,000 of income on my taxes, and probably end up owing the IRS. Also, If I later sold the shares for say, $100,000, what would taxes look like then?
It's the stock options I'm not sure I understand. I do understand that an option means that I don't own the stock yet, but that I can purchase it later at the strike price which, given my previous example, is $30,000. So, hopefully down the road, the company value will be worth more, say $1,000,000, so at that point, if I wanted to exercise my options, I could pay $30,000 but then turn around and sell those shares for $100,000 for a $70,000 profit. So at this point, would $70,000 be the amount added to my taxable income?
The other thing confusing to me is my partner, who doesn't know a ton about this either, keeps saying that if I choose options, I won't have to pay anything when I exercise them because I will be paying for them with my "sweat equity" (aka working for the company without pay), but it seems to me, that's not how stock options work and unless I get it in a contract that the company will pay my strike price when I exercise them, I will have to come up with the strike price myself. Is that right?
Are there any other considerations when making the choice between stock vs stock options?