Question 1

What is the difference between ISOs and NSOs in California?

Accepted Answer

ISOs (Incentive Stock Options) and NSOs (Non-Qualified Options) have the same vesting and exercise mechanics, but different tax treatment. ISOs: If held long enough (2+ years from grant, 1+ year from exercise), gains are taxed as capital gains (lower rate). NSOs: Taxed as ordinary income when exercised (higher rate). California has no state-level tax advantage for ISOs, but federally ISOs can be better. NSOs are more common in California startups because they're simpler.

Question 2

What is a typical vesting schedule for California startup equity?

Accepted Answer

Standard: 4-year vesting with 1-year cliff. No equity vests in Year 1; if you leave before Month 13, you lose everything. After the cliff, 25% is vested. Then equity vests monthly/quarterly for the remaining 3 years. Some companies use cliff-less vesting (equity vests immediately, monthly). Negotiate for shorter cliffs (6 months) if you can.

Question 3

What happens to my options if I leave the company?

Accepted Answer

Vested options: You keep them and have a window to exercise (usually 90 days, but push for 7+ years). Unvested options: You forfeit them (unless there's acceleration). Most employees leave money on the table because they don't understand this. Negotiate for: (1) longer exercise window, (2) acceleration upon termination without cause, (3) extended exercise window after leaving.

Question 4

What is acceleration and should I negotiate for it?

Accepted Answer

Acceleration means unvested equity vests early upon specific events (acquisition, layoff, or termination without cause). Full acceleration: all equity vests immediately. Double-trigger: equity vests only if you're terminated AFTER the acquisition (common). Negotiate for double-trigger acceleration to protect yourself. Single-trigger acceleration is rarer but valuable if you can get it.

Question 5

How is exercising options taxed in California?

Accepted Answer

NSOs: Taxed when exercised on the spread (stock price - strike price). If you exercise $100 in options at $30 strike when stock is $100, you owe ordinary income tax on $70/share. ISOs: No tax when exercised (if holding requirements met), but ordinary income tax on any gains. California income tax applies to both. Plan for taxes — many employees exercise and then owe huge tax bills.

Stock Options & Equity in California: Tax & Vesting Rules

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Stock Options & Equity in California — Frequently Asked Questions

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