121–130 of 155 posts
Has the valley ever seen a more hyped, yet disappointing hire than Mayer?
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So you have an asset that is considered worth a price, but you cannot buy it or sell it at that price? Seems to me an unfortunate tax policy.
It's the exercise and hold that gets you. If you do a same day sell, you have the money to cover the taxes immediately, since you sold. If you exercise and hold, you pay the money to exercise, and now owe taxes on the asset at fair market value of the assets when exercised, which you might not have because your bank account is actually decreasing. In the future, if the asset loses value, even if you sold all of it, y…
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almost all tax policies are unfortunate.
.. Although it is handy to have had an education, healthcare, police service, fire service, roads, libraries etc. But other than that stuff, it's very unfortunate.
Poor execution, lack of innovation. At least Mayer can run for public office now...
We have no idea what happened at Yahoo. They may have failed two years earlier without Mayer, for all we know.
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Generally this occurs when you exercise an option to purchase stock, then hold the stock while it significantly depreciates in value. Fairly common scenario during the dot-com bubble. 1) Option at $1 2) Exercise at $100, spending $1 to buy. Tax on $99 short term capital gains owed, or ~$35. 3) Stock falls to $10 and sold for a $9 profit. You still owe $35 capital gains and spent $1. Net loss of $25 per share.
So if you exercise an option to buy a stock for $1, you have to pay taxes on the stock's current value, but if you had bought the stock outright at $1, you don't have to pay capital gains until you sell? That's absurd
The key here is timing. In both cases you are buying the stock for $1, but in one case it's officially worth $100. Therefore, you have a taxable gain.
That much makes sense. What doesn't make sense is treating an illiquid value the same as a liquid one.
Has there ever been a successful turnaround of a software company of Yahoo's scale? Mayer has been tech news' pinata for over a year now, but the company was sliding before she was even hired. Looking through a list of dead Yahoo services, it reads as an obituary of region specific social networking sites and forgettable web services[1]. Social sites are notoriously fickle, and boosting one to popularity is somewhat…
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almost all tax policies are unfortunate.
.. Although it is handy to have had an education, healthcare, police service, fire service, roads, libraries etc. But other than that stuff, it's very unfortunate.
Virtually any unconventional earnings have the potential to screw you based on the intricacies of law, rather than the average tax rate employed.
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.. Although it is handy to have had an education, healthcare, police service, fire service, roads, libraries etc. But other than that stuff, it's very unfortunate.
The OP said due to tax policy, not taxes. Due to perverse incentives (pandering to various classes of voters) and unintended consequences, tax policies have become byzantine horrors.
If you earn a steady wage, or simple capital gains, things go fine. Anyone dealing in options, variable hours, contract work, or anything else unconventional faces totally irrational outcomes unless they're exceedingly careful.
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One person who avoided this was Mark Cuban, who bought a bunch of Yahoo! put options when broadcast.com was acquired, hedging himself against the stock crash.
Nice strategy. I wonder why others didn't do it.
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So if you exercise an option to buy a stock for $1, you have to pay taxes on the stock's current value, but if you had bought the stock outright at $1, you don't have to pay capital gains until you sell? That's absurd
There are some downsides but this is one of the reasons that phantom stock and phantom stock options[1] can be good for employees as there is essentially nothing taxable until the actual payout, which is treated as regular income and can have taxes withheld like a normal bonus. 1. https://en.wikipedia.org/wiki/Phantom_stock
It seems like it would be better than the worst case with traditional options but not as good as the best case. I mean, ideally you exercise your options early at a very low price and then enjoy long-term capital gains tax rates. Phantom stock means you'll always pay way more in taxes when you get your equity-based payout - 50%-60% vs 20%-30%. At the same time though you are never at risk of ending up underwater.
It seems like phantom stock would be great as an option for companies to offer employees - i.e. you could either get a traditional options structure or phantom stock. I wouldn't be surprised if there were negative accounting or tax consequences for the company though. And maybe the administrative overhead for offering phantom stock in addition to traditional options would be prohibitive for small startups.