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House Passes Employee Stock Options Bill Aimed at Startups

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Re: House Passes Employee Stock Options Bill Aimed at Startups

#121

Post by [deleted] »

dragonwriter wrote: post #101
MichaelBurge wrote: post #62

Earlier quoted context omitted.

My understanding is that the federal government cannot impose a property tax, without just distributing it to the states by population. My reading of the commerce clause is that they couldn't impose a sales tax on in-state commerce. So it's not like these went away after they gained the power to assess an income tax: they were never an option. As a general rule, you could remove any government agency created with the…

> My reading of the commerce clause is that they couldn't impose a sales tax on in-state commerce. (1) The commerce clause is a grant of power, not a limit. It's indisputable that the commerce clause does not authorize a tax on in-state commerce, but it doesn't prohibit one, either. So we need to look beyond the commerce clause and ask if a federal sales tax is authorized anywhere else. (2) The dollar value of sales…

[deleted]

Re: House Passes Employee Stock Options Bill Aimed at Startups

#122

Post by stevenae »

The article appears to get the "seven years" qualification wrong. The bill states that tax must be paid at:

>> the date that is 7 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier

Which implies that transfer-restricted stock grants do not start this clock ticking.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#123

Post by yaur »

grellas wrote: post #100

The original point of ISOs was to offer to employees the opportunity to take an economic risk with stock options (by exercising and paying for the stock at the bargain price) while avoiding the tax risk (by generally not recognizing ordinary income from that exercise and being taxed only at the time the stock was sold, and then only as a capital gains tax). AMT has since emerged to devour the value of this benefit. B…

> This "tax breather" is a positive step

I'm really not sure that's true.

Its usually a bad idea to take stock options instead of a market rate salary because most options are worthless in the long run. Lots of people do it anyway because they have a fantasy about making it big. As it stands now this is a life lesson that people spend some time in their 20s figuring out and probably walk away with nothing but some valuable experience.

Under the current scheme exercising illiquid options is a bad idea most of the time if you can't pay the taxes on it and this is obvious. This change doesn't make it a better idea but it makes it much less obvious that its a bad idea.

That 20 something that would have walked away with nothing will be much more likely to walk away with a 6 or 7 figure tax debt that may cripple him financially for the rest of his life.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#124

Post by toomuchtodo »

gtrubetskoy wrote: post #107
toomuchtodo wrote: post #103

Earlier quoted context omitted.

If you exercise your ISO options (because of option expiration clauses, typically 90 days after you leave a company), but then don't (or can't due to no market for the shares) immediately sell those shares, the spread between the option grant price and the current 409A valuation is due as AMT tax. You have not realized an event where cash is in your pocket, but you still owe tax on the "gain". You ask what does it ma…

I see... So what should in theory fix it is if the company granting you the options also provided a guarantee that they will buy shares from you should you be inclined to sell them (A sort of a "sell at current price" option I suppose). This way you can exercise the options, and sell enough shares to cover the tax obligation and hang on to the rest.

Bookmarked to come back later to add detail. There is a better way where your company lets you exercise all your options immediately when you're hired, and you return non-vested shares when you leave.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#125

Post by toomuchtodo »

dlubarov wrote: post #119
toomuchtodo wrote: post #103

Earlier quoted context omitted.

If you exercise your ISO options (because of option expiration clauses, typically 90 days after you leave a company), but then don't (or can't due to no market for the shares) immediately sell those shares, the spread between the option grant price and the current 409A valuation is due as AMT tax. You have not realized an event where cash is in your pocket, but you still owe tax on the "gain". You ask what does it ma…

> the spread between the option grant price and the current 409A valuation is due as AMT tax For ISOs. When you exercise NSOs, the spread is taxed as ordinary income.

Thanks! Clarified my post.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#126

Post by ericd »

iaw wrote: post #95
matt_wulfeck wrote: post #57

> Only startups offering stock options to at least 80 percent of their workforce would be eligible for tax deferrals, and a company’s highest-paid executives would not be able to defer taxes on their stock under the legislation. I understand the desire to avoid a regressive taxation system, but why is it that every tax rule we create comes with 2x the amount of caveats and rules? Our tax system is becoming a mess. At…

I agree that there's too much added complexity in the tax-code but do you really feel that this requirement is that onerous? The likely motivation being being in line with those around 401k account requirements: if a company uses this, it should be to the benefits of the employees and not just the executive staff.

401k plans are very annoying to administer, much more so than, say, a SEP IRA.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#127

Post by djrogers »

whamlastxmas wrote: post #104
revo13 wrote: post #55

Earlier quoted context omitted.

So you are content with having a tax system that treats you like a 1%er in the event that you cash in a payday (say $1mil - 35-40%) during a given year, despite the fact that you may have worked your whole life at a middle class level, scraping to save? A consumption tax would allow individuals to actually make choices about how/when they are taxed. Lets be honest, people will still want their "stuff". If they have m…

If I normally make 60k a year and get a one-time payday of $1MM, I'll be paying around 13% more in income tax on that million dollars than I do on my regular income. Even with AMT it isn't a huge deal. This seems pretty reasonable to me. It's not perfect but it's not a reason for completely eliminating income tax. It's a reason for having exemptions, which is exactly what this article is about. >If they have more mon…

> All the rich people would just buy them overseas.

You can't live in a home you buy overseas without living overseas. As for cars, boats, and planes, you pay consumption based taxes when you register them - that's the way state sales tax works on such things in most places today.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#128

Post by utternerd »

bjt wrote: post #93
maratd wrote: post #89

Earlier quoted context omitted.

> A complicated tax system is perfectly fine if its control logic is algorithmic and its parameters are easily found by the taxpayer. Expecting a normal human being to navigate anything complex in unreasonable. Complex is a relative term. By definition, if something is complex, it is difficult for an average person to navigate. I know where you're going with this, if something is consistently coherent we can use comp…

> But ... there's no reason we can't have a simple tax system. None at all. Most quirks and exceptions in our current system have their own constituencies who are willing to send lobbyists to defend the status quo. Those constituencies represent the thousands of reasons why we can't have a simple system. There is no comparably powerful constituency for making taxes simpler. Most people just don't care that much.

And thus, death by a thousand cuts. If an entity is getting 20k in tax breaks or "handouts" it's in their best interest to defend that. To the taxpayer however, the $1.78 you're paying (or whatever the minuscule number is) to cover that annually is nothing to you, and certainly not worth your time to fight against.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#129

Post by djrogers »

This is good news, but it may not go anywhere -

"the Administration strongly opposes H.R. 5719 because it would increase the Federal deficit by $1 billion over the next ten years." [1]

So a really bad tax rule is in place, but since it happens to bring in ~$100M/yr, we shouldn't fix the rule?

[1]https://www.whitehouse.gov/sites/default/files/omb/legislati...

Re: House Passes Employee Stock Options Bill Aimed at Startups

#130

Post by mrfusion »

chubot wrote: post #113
mrfusion wrote: post #22

Does anyone have experience buying stock options from employees. I really want to own shares in a few companies that would never hire me :-(

I would check out sharespost, equityzen, or equidate (and also search for them on Hacker News, as I found others mention experience with sharespost). I don't have direct experience, but I was helping a friend with a number of shares in a late stage startup research the sell side, and those are the companies that came up. It crossed my mind to buy shares but I haven't done so. For some of them, you have to be an accre…

Thanks for the helpful answer. Do you need a lawyer or accountant when using one of those sites or is it all pretty standardized?
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