You get taxed at the amount of &#x27;profit&#x27; you have gained when you exercise the option.  There is an &#x27;ISO&#x27; stock option type for employees that makes the tax event when you actually cash out, but an alternative tax system called &#x27;AMT&#x27; (alternative minimum tax) kicks in pretty quickly and taxes you anyway.  The entire system assumes you are getting public company stock or something similarly liquid and taxes you as so.<p>Capital losses cannot be applied to normal income in practice in the US either, only to other capital gains.