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...
> So a really bad tax rule is in place, but since it happens to bring in ~$100M/yr, we shouldn't fix the rule?
Assuming, for the sake of argument, agreement that the rule is bad, fixing it without paying the cost at the same time may still be worse.
> 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.
401ks are itself a convoluted mess.
They should just say, "hey, if you work, you can invest it tax-deductible and tax-deferred".
The current system is, "if you work, then you should be able to participate in your caricatured, mustache-twirling, ultra-rich boss's tax-deferred plan, in accordance with all these rules and exceptions that clumsily try to make him share his bottomless wealth with you."
> 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…
the US is in a weird position where the federal government actually has very little power. But it has tax power. So they just use taxes as a way to manipulate things in the way they want. But as far as I understand, the US tax system is also one of the 2-3 most complicated in the world... Being an permanent resident and not being used to this from my home country, Im making a lot of suboptimal financial decisions pur…
I actually don't believe the federal government has very little power. The Supremacy Calause, the Civil War, erosions of the 10th amendment (the US code is intense!), having a court called the "Supreme" court, regulating interstate commerce, adjudicating disputes between states, raising an army, and of course taxing citizens in any state should provide ample support to the federal government's power. And yes, they also control individual states by proxy using fund distributions as a carrot (road standards, national speed limit). They control immigration into the US; no individual state has the power to invite a foreign citizen into a US state.
> At this rate soon nobody will be able to file their own taxes without an accountant to sort through the muck. And complicated to systems tend to benefit the wealthy. It also heavily benefits Quicken. Along with HR Block, they heavily lobby against any effort that simplifies the tax code. Capitalism, American-style.
Intuit is a pretty funny company. They try to make TurboTax as simple as possible for the average American (most Americans can fill out a 1040EZ and be done in minutes), but at the same time try to make taxes as complicated as possible so that they can sell services around that. It's both smart and infuriating .
Intuit's position isn't necessarily pro-complexity, they'd actually prefer the tax code simplified somewhat, because they'd need far fewer employees to update the tax code information in the software every year. The lobbying is to keep the IRS from A) releasing free 1040EZ/A software and B) keep the IRS from simplifying even further and just sending you a bill, like HMRC does.
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…
You can keep deducting that capital loss on the options exercise going forward against future capital gains, and up to $3000 more can be deducted against regular income each year until you balance everything out.
BUT
Since the gain is actually unrealized the best answer is ask your CPA. Really.
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 va…
Exactly--this bill is a pernicious half-measure that only serves to further obfuscate the problem. One can exercise in-the-money but illiquid options without grappling today with the problem of selling them while being anchored to a heavy tax obligation ("seven years is a long time, surely by then there will be a market").
> 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…
> a company’s highest-paid executives would not be able to defer taxes on their stock under the legislation. Where is the line drawn on this? I am a companies highest paid executive... I make a whopping $100k. Some of the others have no pay check at all. Exersizing would net a $40k tax bill for me. 40% of my pre-tax take-home pay. But as the highest paid executive am I exempt from deferring? Edit: to answer my own qu…
To be honest, if they can afford to work without being paid, they're probably fairly well off already.
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 va…
If the company goes bust before you get liquid, isn't that a loss commensurate with your gain that could be used to offset it?
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…
You can keep deducting that capital loss on the options exercise going forward against future capital gains, and up to $3000 more can be deducted against regular income each year until you balance everything out. BUT Since the gain is actually unrealized the best answer is ask your CPA. Really.
Only in years where you have no AMT liability. GL with two earners in California. While you have AMT liability you have to keep endlessly carrying forward your 0% interest loan to the govt.
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.
401ks are itself a convoluted mess. They should just say, "hey, if you work, you can invest it tax-deductible and tax-deferred". The current system is, "if you work, then you should be able to participate in your caricatured, mustache-twirling, ultra-rich boss's tax-deferred plan, in accordance with all these rules and exceptions that clumsily try to make him share his bottomless wealth with you."
"They should just say, "hey, if you work, you can invest it tax-deductible and tax-deferred"."