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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

#151

Post by st3v3r »

dragonwriter wrote: post #131
djrogers wrote: post #129

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.

While true, on the scale of the federal government, $1 billion is pretty trivial.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#152

Post by st3v3r »

revo13 wrote: post #55
whamlastxmas wrote: post #49

Earlier quoted context omitted.

High consumption tax creates an incentive to not spend your money, which is bad.This also means the millionaires and billionaires of the world get to invest their money tax-free to earn even more money, often with rent-seeking, while 95% of America is getting taxed essentially up front on the vas majority of their earnings because it gets spent on stuff like housing, food, and healthcare. This creates a massively reg…

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…

Content? No. But it's still far better than the system you propose.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#153

Post by dragonwriter »

st3v3r wrote: post #151
dragonwriter wrote: post #131

Earlier quoted context omitted.

> 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.

While true, on the scale of the federal government, $1 billion is pretty trivial.

If you make a policy of ignoring individual things because the cost in isolation is trivial, the sum of those ends up not being trivial. Or, as is popularly misattributed to (but endorsed by) Senator Everett Dirksen: "A billion here, a billion there, and soon you are talking about real money".

Re: House Passes Employee Stock Options Bill Aimed at Startups

#154

Post by harryh »

gshulegaard wrote: post #149
harryh wrote: post #24

Earlier quoted context omitted.

You have the gist right but a couple of corrections: 1) The board doesn't set the price arbitrarily. They engage a 3rd party accounting firm to do a 409A evaluation of the company. The 3rd party essentially sets the price. It's true that determining a market price for private company stock is just as much art as science but it's not completely arbitrary. 2) The company ABSOLUTELY CANNOT offer stock options at a disco…

See I knew there would be someone else on here who knew better :) Anyway, my only elaboration on point 4 and 5 is that most options agreements have vesting ~~terms~~ schedules (and they typically include 1-year cliffs). So even under ideal conditions you will have to wait a certain amount of time before exercising. But thanks for taking the time to add additional details!

You can actually exercise before stock has vested. If you leave the company before your stock vests they have the option of buying it back from you.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#155

Post by [deleted] »

arcticfox wrote: post #143
yaur wrote: post #123

Earlier quoted context omitted.

> 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…

Citation / reference on most options being worthless? I feel that most companies that make it to that stage pan out beyond being worthless. I must be missing something, since I'm not that familiar with how options in startups work.

[deleted]

Re: House Passes Employee Stock Options Bill Aimed at Startups

#156

Post by gshulegaard »

harryh wrote: post #154
gshulegaard wrote: post #149

Earlier quoted context omitted.

See I knew there would be someone else on here who knew better :) Anyway, my only elaboration on point 4 and 5 is that most options agreements have vesting ~~terms~~ schedules (and they typically include 1-year cliffs). So even under ideal conditions you will have to wait a certain amount of time before exercising. But thanks for taking the time to add additional details!

You can actually exercise before stock has vested. If you leave the company before your stock vests they have the option of buying it back from you.

Interesting...also good to know. Thanks!

Re: House Passes Employee Stock Options Bill Aimed at Startups

#157

Post by mateo411 »

throwaway2016a wrote: post #109
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…

I'm at a startup and haven't exercised for this exact reason I was hoping this was to fix that. It's unclear to me that if I defer it and the company goes out of business before then, does that mean I pay no taxes? And if the price goes up do I pay capital gains or income tax on the difference in value between now and what it went up to? What about the difference between now and my excise price.

If you never exercise you don't pay taxes.

I think if you hold the shares longer than 2 years, then you pay capital gains. If you hold them less than 2 years, then you pay income tax.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#158

Post by jnordwick »

encoderer wrote: post #139
jnordwick wrote: post #135

Earlier quoted context omitted.

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.

1- I don't know how exactly AMT liability interacts with the capital loss carry over

2- Almost nobody hits the AMT jackpot year after year.

3- Ask your CPA and California's tax system is one of the worst in the country. They keep milking that SV cash cow year after year, and it is drying up but they don't seem to care :)

Re: House Passes Employee Stock Options Bill Aimed at Startups

#159

Post by a13n »

tyleraldrich wrote: post #106
__jal wrote: post #92

Earlier quoted context omitted.

> 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 .

I hate Intuit for acquiring Mint and letting it rot. RIP Mint.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#160

Post by a13n »

harryh wrote: post #94
aqme28 wrote: post #91

Earlier quoted context omitted.

This bill reduces the main reason that employees exercise their options "early" while they're still illiquid. The employee likely wouldn't have paid that money until there was an actual liquidity event.

This is not correct. The main reason that employees exercise options "early" is if they change jobs and have to exercise to keep their options.

Or because exercising early means you pay some long term capital gains instead of income tax.
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