House Passes Employee Stock Options Bill Aimed at Startups • Hacker News Board

Re: House Passes Employee Stock Options Bill Aimed at Startups

#31

Post by goseeastarwar » Fri, Sep 23, 2016, 1:21 PM UTC

gshulegaard wrote: post #11

chillydawg wrote: post #3

Nice to see tax laws for the rich can get passed, but substantive change to do with criminal justice, healthcare etc go nowhere.

To be perfectly honest, this bill affects mostly middle class near as I can tell. The following is entirely personal understanding of my own stock option agreement and is subject to mistakes and misconceptions...so someone can feel free to correct me. The problem this bill targets is the "exercise tax" interaction. Say you are an employee at a start up. Said start up can't afford your full normal salary so they pay y…

409A isn't an arbitrary number the board makes up. Private co's pay external firms to do market research and sift through internal financial/key metrics to derive that number.

Your scenario of an immediate $.30 tax liability because of an arbitrary discount also isn't correct. 409A is recalculated on some interval (quarterly generally) and those price changes determine your stock's new value and subsequent tax liability, but only when you exercise options/sell shares.

The common stock discount you're referring to is when there are preferred shares granted to an investor, but common is still determined by an external firm.

Edit: harryh beat me because I type too slowly.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#32

Post by ones_and_zeros » Fri, Sep 23, 2016, 1:21 PM UTC

breerly wrote: post #25

ones_and_zeros wrote: post #21

Earlier quoted context omitted.

I understand the intent of the legislation perfectly. How often do you think gains are ever realized by startup employees given stock options?

Not often. But making it costlier to participate only makes the proposition riskier or fiscally unfeisable. That hurts employees. Startups are useful in that they trade off innovation for risk - a handful of startups make huge impacts and grow into successful companies. People know that when they sign up to work for a startup - finding out they can't realize the upside potential is the surprise.

So do you think this could lead to more people like Bob ponying up $50k to exercise the options considering that he is unlikely to realize a gain?

Re: House Passes Employee Stock Options Bill Aimed at Startups

#33

Post by [deleted] » Fri, Sep 23, 2016, 1:23 PM UTC

jimbokun wrote: post #28

asah wrote: post #9

Can someone explain: if you exercise and hold the shares (eg leave the company) do you owe tax after year seven, even if the shares remain illiquid? That's the core issue: the IRS is taxing individuals on truly illiquid assets.

True, but is it the IRS' fault if the corporation refuses to create a market for their shares? If the IRS didn't tax these shares, it would quickly become a tax shelter of epic proportions, no?

[deleted]

Re: House Passes Employee Stock Options Bill Aimed at Startups

#34

Post by Zigurd » Fri, Sep 23, 2016, 1:25 PM UTC

jimbokun wrote: post #28

asah wrote: post #9

Can someone explain: if you exercise and hold the shares (eg leave the company) do you owe tax after year seven, even if the shares remain illiquid? That's the core issue: the IRS is taxing individuals on truly illiquid assets.

True, but is it the IRS' fault if the corporation refuses to create a market for their shares? If the IRS didn't tax these shares, it would quickly become a tax shelter of epic proportions, no?

A key factor in whether that's truly a tax shelter is control. If your not in a position to make or even influence decisions about liquidity, you're not exactly a voluntary participant.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#35

Post by sk5t » Fri, Sep 23, 2016, 1:26 PM UTC

jimbokun wrote: post #28

asah wrote: post #9

Can someone explain: if you exercise and hold the shares (eg leave the company) do you owe tax after year seven, even if the shares remain illiquid? That's the core issue: the IRS is taxing individuals on truly illiquid assets.

True, but is it the IRS' fault if the corporation refuses to create a market for their shares? If the IRS didn't tax these shares, it would quickly become a tax shelter of epic proportions, no?

What's the benefit of a wholly illiquid "shelter"?

Re: House Passes Employee Stock Options Bill Aimed at Startups

#36

Post by rayiner » Fri, Sep 23, 2016, 1:27 PM UTC

MichaelBurge wrote: post #30

rayiner wrote: post #19

Earlier quoted context omitted.

We have 52 different tax systems for individuals by my count. All the states have have different rules too. Last several years, my wife and I have had to figure out our taxes five different ways on the same income.

Does Washington D.C. make a 53rd? And though income taxes are managed by the state, I suppose each county collects its own property taxes.

Yup, 53. Or maybe 44 if you don't count the state that don't tax ordinary income.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#37

Post by tmaly » Fri, Sep 23, 2016, 1:29 PM UTC

I am wondering if there will be additional complexity added to the rule making phase of this if it becomes law.

While this amendment is short in length, it seems to add additional complexity to an already complex tax code. I would have liked to have seen an even simpler proposal.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#38

Post by maxerickson » Fri, Sep 23, 2016, 1:34 PM UTC

MichaelBurge wrote: post #30

rayiner wrote: post #19

Earlier quoted context omitted.

We have 52 different tax systems for individuals by my count. All the states have have different rules too. Last several years, my wife and I have had to figure out our taxes five different ways on the same income.

Does Washington D.C. make a 53rd? And though income taxes are managed by the state, I suppose each county collects its own property taxes.

Many jurisdictions smaller than states levy income taxes.

I think they are usually simpler to figure (often just a single flat rate).

Re: House Passes Employee Stock Options Bill Aimed at Startups

#39

Post by hacknat » Fri, Sep 23, 2016, 1:40 PM UTC

sk5t wrote: post #35

jimbokun wrote: post #28

Earlier quoted context omitted.

True, but is it the IRS' fault if the corporation refuses to create a market for their shares? If the IRS didn't tax these shares, it would quickly become a tax shelter of epic proportions, no?

What's the benefit of a wholly illiquid "shelter"?

That it will become liquid one day. If you get to make all sorts of incredible options deals under the cover of "not in the market" then you can simply make lots of situations like this happen and simply bring them to market when there is no risk involved for you anymore.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#40

Post by tetrep » Fri, Sep 23, 2016, 1:46 PM UTC

martin_ wrote: post #2

This sounds great, though requiring "offering 80% of the workforce stock" and excluding highest paid executives seems vague - is this at time of hiring, when stock is issued, fully vested, when taxes are due, somewhere inbetween? I parted ways with a startup in the valley last year and exercised some shares on January 13th. If I had exercised just two weeks earlier, I'm told I would've been hit with north of 50k in A…

From the bill, a corporation qualifies (aka the current state of affairs) if...

such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock.