"Your options have a strike price and private companies generally have a 409A valuation to determine their fair market value. You owe tax on the difference between those two numbers multiplied by the number of options exercised, even if the illiquidity of the shares means that you never made a cent, and have no conceivable way of doing so for the forseeable future."
This is either incorrect or I'm misunderstanding it. The purpose of the 409a valuation is to set the strike price of the options. The strike price is the fair market value of the common stock.
Also, to parrot everything everyone else is saying, equity should be valued at zero. Out of the 200 or so 409a valuations I've performed, there might be 10 companies where I would consider the equity to be valuable in the long term.
I think the problem is if you exercise the options after another financing round when the 409a will be higher. You then likely owe AMT on the difference of that value and your strike price.
I believe he means that future 409a valuations that happen after the one that set your strike price change the amount of tax you would owe if you exercise.
This is either incorrect or I'm misunderstanding it. The purpose of the 409a valuation is to set the strike price of the options. The strike price is the fair market value of the common stock.
Also, to parrot everything everyone else is saying, equity should be valued at zero. Out of the 200 or so 409a valuations I've performed, there might be 10 companies where I would consider the equity to be valuable in the long term.