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Startup stock options are a type of equity-based incentive provided by founders to their employees. Essentially, this arrangement grants employees the choice, without obligation, to purchase company shares at a predetermined price in the future.

Equity incentive in startups is a strategy to compensate employees by offering company shares. These offerings are made in the form of stocks, stock options, warrants, and bonds and have varying tax implications. Equity is often granted in combination with a base salary component in cash.

Long-term incentive plans (LTIPs) are increasingly popular among startups as a way to incentivize and retain key employees. LTIPs offer numerous benefits for startups, from helping them attract top talent to increasing productivity and loyalty in the workplace.

You only have to report the taxable income once you decide to sell your stock. However, you will need to mention the difference between the current fair market value and exercise price during the spread (or the time you exercise).