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

Re: House Passes Employee Stock Options Bill Aimed at Startups

#211

Post by curioussavage » Sat, Sep 24, 2016, 12:05 AM UTC

brianwawok wrote: post #47

MichaelBurge wrote: post #41

Earlier quoted context omitted.

> The AMT is the perfect example of when you give someone an inch they take a mile, which is why some people fight so hard against the enactment of new taxes. When the politicians were first proposing the constitutional amendment that allowed income taxes, they were throwing numbers like 1% or 2% around. It took only 4 years from the ratification of the 16th amendment for the maximum tax rate to shoot up from 7% to 6…

So you cap income tax at 2%. Congratulations you just tripled property tax and made sales tax 20%. Taxes are like wackamole. You can't just limit 1 tiny piece and expect anything to change. Furthermore you can't just lower the total take unless you want to explain where the cut is coming from. Less school funding? Less roads? Less police? Less Army? More debt?

Yes. Ill take less Army please. (Lets also include less military gear for police)

Khan Academy for elementary/high school better than 90% of teachers/schools we overpay for.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#212

Post by imh » Sat, Sep 24, 2016, 12:15 AM 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?

Would it become a tax shelter, though? You could just tax the difference between what goes in and what goes out on the date that it comes out. If it never comes out, it's worthless and that's the point.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#213

Post by liquidise » Sat, Sep 24, 2016, 12:21 AM UTC

nostrademons wrote: post #147

arrosenberg wrote: post #134

Earlier quoted context omitted.

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.

It's somewhat infuriating that the IRS doesn't just send you a bill. It has full data on every form you put into TurboTax. It runs its own calculations independently and checks them against your return. It has full knowledge of the tax code. If you disagree with it, the IRS just tacks on penalties & interest and eventually garnishes your wages. Why not just send a bill?

> the IRS just tacks on penalties & interest

I believe you answered your own question.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#214

Post by imh » Sat, Sep 24, 2016, 12:24 AM UTC

revo13 wrote: post #46

More evidence as to why the income tax should be replaced with a consumption tax. Just let people make their dammed money already and apply a simple tax when they spend it. Windfalls wouldn't be "dangerous" or punitive in that model, and savers would be rewarded. --Of course I oversimplify the consumption tax, and safeguard would need to be in place on that to ensure it is not regressive with respect to necessities..…

I don't know. If I were self employed, and you buy a thing from me, is that your consumption (taxed) or my income (untaxed)? This stuff is complicated.

... thinking about it further: A truly crazy idea would be a consumption tax that is based on the income of the seller, to keep it from being regressive. Things from rich people are more expensive as a result, providing a nice anti-monopoly, anti-inequality balance. Now I want everyone to poke holes in why it would fall apart.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#215

Post by ChicagoDave » Sat, Sep 24, 2016, 12:34 AM UTC

nostrademons wrote: post #144

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…

This is the current meme on Hacker News, but IMHO the pendulum has swung too far. You should absolutely be very careful about working for an early-stage startup as an employee and taking options or equity in lieu of part of your salary. You should feel that you trust the founders. You should insist that they've figured out a.) who their customers are b.) why they want the product and c.) how to make money, and have s…

I'd add that it's entirely optional for anyone to take any job and this includes a start-up. If you want a regular job with regular hours with regular stress levels, then please, don't even bother looking at entrepreneurial employment opportunities.

But if you do, you might as well go all in and mix your salary with options, work your ass off for a couple of years, learn as much as you can, build a network, and then if it pays off, great. If it doesn't, don't have regrets that you "lost" a larger salary during that time. Be thankful for the opportunity.

Obviously some situations can unravel in a highly negative manner (the partners sell, but disavow all options, the partners fire you before paying out options to other employees, etc), but those are just normal risks in start-up land. Buyer beware.

But if I were actually in my twenties right now, I would bust my ass at a start-up, have a blast, kick-ass writing code, learn a shit ton of technology, and be grateful for the opportunity.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#216

Post by danieltillett » Sat, Sep 24, 2016, 12:44 AM UTC

revo13 wrote: post #46

More evidence as to why the income tax should be replaced with a consumption tax. Just let people make their dammed money already and apply a simple tax when they spend it. Windfalls wouldn't be "dangerous" or punitive in that model, and savers would be rewarded. --Of course I oversimplify the consumption tax, and safeguard would need to be in place on that to ensure it is not regressive with respect to necessities..…

Rather than a consumption tax (i.e. VAT or GST) a better tax would be an asset tax. Of course such a tax would be highly unpopular with the rich so it has zero chance of ever being implemented.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#217

Post by kevinpet » Sat, Sep 24, 2016, 12:55 AM UTC

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…

The sad thing is that it could have been relatively easy to address by allowing something like a disqualifying disposition as long as the tax is deferred.

I'll probably take advantage of it to exercise some of my shares, but I will have to stick within the range of where I know I'll be able to pay it off within the next seven years even if I never see value for the stock.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#218

Post by thingexplainer » Sat, Sep 24, 2016, 12:59 AM UTC

imh wrote: post #214

revo13 wrote: post #46

More evidence as to why the income tax should be replaced with a consumption tax. Just let people make their dammed money already and apply a simple tax when they spend it. Windfalls wouldn't be "dangerous" or punitive in that model, and savers would be rewarded. --Of course I oversimplify the consumption tax, and safeguard would need to be in place on that to ensure it is not regressive with respect to necessities..…

I don't know. If I were self employed, and you buy a thing from me, is that your consumption (taxed) or my income (untaxed)? This stuff is complicated. ... thinking about it further: A truly crazy idea would be a consumption tax that is based on the income of the seller, to keep it from being regressive. Things from rich people are more expensive as a result, providing a nice anti-monopoly, anti-inequality balance. N…

My thought is that this would be problematic in markets with natural monopolies. There aren't a lot of mom-and-pop power companies. (There are plenty of moms and pops selling power, but as I understand they sell it to the power company who resells it to you by burning less coal.)

Re: House Passes Employee Stock Options Bill Aimed at Startups

#219

Post by kevinpet » Sat, Sep 24, 2016, 1:00 AM UTC

mavelikara wrote: post #145

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…

When a new round is raised, the price paid by the investor gets her a preferred share. How does one compute the FMV of common stock compared to this? Specifically, are there any regulations regarding the max discount that can be applied to the price paid by the last investor to get the FMV of the common stock? I recently came across a case where the FMV of common stock was only few %ge points less than what the last…

For startups not within site of profitability or IPO, it's going to be around a third of the preferred price.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#220

Post by barisser » Sat, Sep 24, 2016, 1:17 AM UTC

nostrademons wrote: post #168

btilly wrote: post #167

Earlier quoted context omitted.

I disagree. The optimal long term strategy for managing a portfolio of independent investments is to always pick a mix that maximizes the expected value of the log of your net worth. This leads to a more conservative investment strategy than the naive "maximize your expected value", and explains such things as why money-losing investments into buying insurance can be a really good idea. In general this is probably no…

Why log? I get that your utility function from money is non-linear, but I would expect a more accurate model to be a step-function, with large steps at "out of debt", "can tell a bad boss sayonara", "can buy a house", "can pay for kids' college eduaction", and "never have to work again". Equity payouts from a typical startup exit often line up nicely with the middle three, and if you hit the Google/Facebook jackpot,…

Log is often used because it makes linear proportional returns. It makes the most sense when gains are considered derived from the principal, ie proportional returns from capital. See an example below.

As others have mentioned, maximizing log is equivalent to maximizing the underlying.

But when considering returns on accruing capital, a 20% loss is much worse than a 20% gain is good, and similarly a 100% gain is much less good than a 100% loss is bad. This is correctly captured by taking the log. In the case where money is simply accrued from some external source, and their is no proportional return, log isn't necessary.